I N S I G H T A N D I N N O V A T I O N I N I N F R A S T R U C T U R E

A n n u a l R e p o r tSREI Infrastructure Finance Limited

Contents• Our vision 2 • Our mission 3 • Our core values 4 • SREI’sinstitutional stakeholders 5 • SREI group 6 • SREI’s vendorpartners 7 • Insight and Innovation 8 • Chairman’s message34 • Managing Director’s overview 36 • SREI’s key strengths38 • Business overview 39 • Segment-wise outlook 40• Advantage SREI 52 • SREI’s business divisions 54• Corporate strategy at SREI 60 • Managing risk at SREI 64• Human resources 70 • Performance 72 • Directors’ Profile78 • Directors’ Report 80 • Auditors’ Certificate on CorporateGovernance 93 • Corporate Governance 94 • Shareholders’Information 100 • Auditors’ Report 107 • Accounts 110

Chief Mentor

Chairman

Vice Chairman & Managing Director

Director

Director

Director

Nominee of IREDA

Director

Executive Director

Executive Director

Executive Director

Company Secretary

Auditors

Mr. Salil K. Gupta

Mr. M. S. Verma

Mr. Hemant Kanoria

Mr. V. H. Pandya

Mr. S. Rajagopal

Mr. Sunil Kanoria

Mr. B. Swaminathan

Mr. R. Sankaran

Mr. P. K . Pandey

Mr. K. K. Mohanty

Mr. Suneet K. Maheshwari

Mr. Sandeep Lakhotia

Deloitte Haskins & SellsChartered Accountants

Board of Directors

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SREI Infrastructure Finance Limited isone of India’s leading non-bankingfinancial institutions specialising ininfrastructure financing • Started operations in1989, now one of India’s largest non-banking financial institutions (NBFIs)

• Headquartered at Kolkata, enjoys a pan-India presence with anetwork of 34 offices and international operations in UnitedKingdom, Germany and the Russian Federation

• Primarily present in three segments - infrastructureequipment finance, infrastructure project finance and renewableenergy equipment finance

• Market leader in the infrastructure equipment finance sector;manages an asset base of Rs. 22405 million

• Increasing presence in the infrastructure project financesector

• Pioneer in financing renewable energy equipment in the ruralareas

• Rechristened from SREI International Finance Ltd. to SREIInfrastructure Finance Ltd. in 2004-05 to emphasise itsinfrastructure focus

• Widely held public company listed on the Kolkata, Mumbai,National and London Stock Exchanges; market capitalisation ofRs. 5163 million as on 28th June 2005

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ur vision

To be the mostinspiring globalinfrastructurefinancial institution

our mission

To be an Indian multinationalcompany providing innovativeinfrastructure financial solutionswith focus on equipment, projectsand renewable energy

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Our core valuesCustomer partnership

The benchmark for the success of SREI is customer satisfaction. SREI delights its customers,through a comprehensive range of financial services which are personalised, fast, reliable,convenient, quality-driven, yet cost-effective.

Respect for people

SREI acknowledges the fact that its people are its most valuable assets and accordingly tries toprovide the best possible work-environment and treats them like family members instead ofemployees. Rewards excellence and initiative. Promotes training, participation, equal opportunity,teamwork and leadership at all levels thereby empowering people to work with speed, responsibilityand accountability.

Stakeholder value enhancement

SREI is committed to earning the trust and confidence of all its stakeholders. Its growth focus, theability to constantly enlarge its product basket, control risk and reduce the cost of its services haveresulted in enhanced value.

Integrity

Business integrity is a way of life in SREI. The company is proud to stand by integrity in all itsdealings and ensures strict adherence to highest standards of business ethics.

Passion for Excellence

SREI’s passion for excellence is instrumental in positioning the company as the most innovativeinfrastructure solution provider in India.

Professional Entrepreneurship

SREI’s in-depth knowledge of the infrastructure financing business in India coupled with its spirit ofentrepreneurship helps the company to tackle all kinds of obstacles and complexities withprofessional expertise.

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SREI’s institutional stakeholdersSelect international and Indian stakeholders

International Finance Corporation(World Bank Group), Washington

FMO Netherlands DEG Germany

Unit Trust of India Belgium Investment Overseas(BIO)

UTI Bank Ltd.

LIC Mutual Fund Tata Mutual Fund

ICICI Bank Ltd.

GIC Mutual Fund

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SREIgroup

SREICapital Markets

Limited

SREIVenture Capital

Limited

SREIInsurance Services

Limited

SREIForex

Limited

SREIMoney Mall

Limited

SREIInsurance Agency

and BrokingLimited

GlobalInvestment Trust

Limited

Bengal SREIInfrastructureDevelopment

Limited

IIS InternationalInfrastructure

Services GmbH

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SREI’s vendor partners Select International and Indian stakeholders

Ashok Leyland Atlas Copco India Limited Bharat Earth Movers Limited

Caterpillar Dozco Escort Construction EquipmentLimited

Greaves Limited Gujarat Apollo Equipments Limited

Tatra Udyog Limited Telco Construction EquipmentsCompany Limited

TIL

Vectra Vermeer

Wirtgen

Volvo

Indital Construction

Ingersoll Rand JCB L&T Komatsu

Liebherr Metso Minerals Puzzolana Machinery Fabricators

Sandvik Schwing Stetter Tata Motors Limited

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INSIGHT AND BOOSTING PERFORMANCESREI reported a 50 per cent increase in disbursements, a 38.68 per cent increase in PBTand a 38.45 per cent increase in PAT (after deferred tax) in 2004-05.

In doing so, the company reported a record Rs. 283 million in profit after tax and Rs. 5.31earning per share during the year under review. In spite of a rapidly changing industryenvironment, declining industry margins and increasing competition, the companymaintained its growth momentum riding on the dual edge of ‘insight & innovation’.

INNOVATION

What have ‘Insight and Innovation’ achieved for SREI?

Transformed an industry challenge into a business opportunity

Transformed a demand push into a consumer-vendor pull

Transformed a rate-driven approach into a margin-enhancing strategy

Transformed a focus on cost control to enhanced margins

Transformed a one-sided proposition into a win-win approach

Transformed ad-hoc customer interactions into sustainable partnerships

Transformed the company from an intermediary into an inseparable partof a vendor’s winning strategy

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INSIGHT ANDARE ABOUT EMPOWERINGCUSTOMERS

Paison ki NilamiSREI launched ‘Paison ki Nilami’, an auction of interestrates for infrastructure equipment in 2004-05, possiblythe first such instance in the world.

INNOVATION

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‘Paison ki Nilami’ was a runaway successas it comprehensively addressed thefollowing concern areas:

• Inadequate information and awarenessamongst private players about the latestconstruction equipment

• The scattered presence of users who donot enjoy an access to equipmentvendors, quite a few of whom are multi-nationals.

• Absence of win-win proposition for thestakeholders, namely vendors, end-usersand the financier.

SREI responded to these challenges byproviding a single-window service in thefollowing manner:

• It facilitated an easy availability ofexcavators, tippers, dumpers, loaders,transit mixers and compactors fromleading manufacturers (Volvo, JCB,Ingersoll Rand, Tata Motors, Puzzolanaand Indital Construction).

• It regulated the onward sale through areverse auction process: instead of SREIdictating the rate of interest thatcustomers would need to pay as a part ofthe financed acquisition, it empoweredcustomers to decide the rate influencedby the prevailing demand and supply ofthe equipment.

In doing so, SREI expanded its role:

• From directly determining interest ratesto empowering customers to do so.

• From being an arranger of finance to aone-stop provider of equipment andfinance.

• From a conduct of transactions across anumber of locations to the brandedorganisation of an equipmentsupermarket, the first of its kind in thecountry.

• From providing customer solutions atthe lowest rate to deriving the maximumvalue-addition through better service.

The depth of the insight and innovationwere reflected in their impact: SREI’spioneering reverse auctions in 2004-05generated considerable revenue andestablished its credentials as aninnovative company in a generalisedsolution-driven industry.

SREI facilitated an easyavailability of excavators,tippers, dumpers, loaders,transit mixers and compactorsfrom leading manufacturers

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INSIGHT ANDARE ABOUT ENHANCINGVENDOR AND CUSTOMERPROFITABILITY

Bulk deals SREI launched a special scheme to facilitate theimmediate delivery of equipment to the customerthrough tie-ups with vendors. Bulk deals like theseresulted in a win-win scenario for customers, vendors andSREI alike. While it enabled vendors to achieve a speedyliquidation of their inventory, SREI was able to procurethe equipment at discounted rates and offered customersa wide range of products coupled with customisedfinancing schemes.

INNOVATION

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In April 2005, SREI signed a landmark dealwith Tata Motors for the purchase of10,000 heavy transport equipment, thelargest such instance in India.

This is what made the industry-financiercollaboration a proposition whosemoment had arrived:

• In a booming economy where demandoften exceeded supply, a number ofserious users often faced delays inproduct delivery.

• Delays in product delivery often resultedin entrepreneurs missing out on profitableopportunities in a dynamic marketplace.

• An increasing need became visible forcombining vehicle availability withcustomised financing.

SREI’s bulk purchase translated into thefollowing implications, some clearlyunique within its industry space:

• Easy and timely delivery of vehiclesanywhere in the country, puttingcustomers into business in the shortesttime.

• A selection of vehicles (heavycommercial vehicles and tippers) thatrepresent the fastest moving items inIndia’s commercial vehicle sector.

• A significant decline in risk forcustomers through the pioneeringexercise of the rental or operating lease(dry or wet lease) in India, which made itpossible for the vehicle to be optionallyreturned to the company following theend of the contracted tenure.

• The negotiated purchase of vehicles atan attractive discount to the prevailingmarket price, the benefit of this beingpartly passed on to buyers.

SREI’s proposal translated into attractivevalue not just for itself but also for itslarge and respectable vendors in thefollowing ways:

• A one-shot purchase enabled them toallocate a certain proportion of theirinstalled capacity to one customer.

• The large purchase enabled them toliquidate their inventory, thereby reducingholding costs.

• It helped transform the ‘make-and-sell’model to ‘make-to-order’, therebyreducing their marketing costs.

Going ahead, established equipmentmanufacturers like Ingersoll Rand, Volvo,JCB and Puzzolana entered into similardeals with the company, assuring offtakefor themselves and revenue for thecompany.

SREI’s bulk purchasetranslated into easy andtimely delivery of vehiclesanywhere in the country inthe shortest possible time

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INSIGHT ANDARE ABOUT GOINGBEYOND THE OBVIOUS

GDR issueIn April 2005, SREI became India’sfirst infrastructure-financing NBFIto issue global depository receipts(GDRs) and get listed on theLondon Stock Exchange.

INNOVATION

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A number of realities ensured that thishappened at the right moment:

• A consensus among all Indian politicalparties and Government that the mosteffective way to liberalise the countrywould be to grow its infrastructure.

• This realisation translating into anappetite of a conservative estimate ofUSD 150 billion over the next decade, farbigger than the available resources.

• A prevailing under-penetration and theprospect of an appreciating Rupee,resulting in a growing interest amonginternational financiers to invest in India’sinfrastructure.

• Tax benefits for India’s infrastructureprojects as well as a governmentassurance on returns protecting theviability of a number of projects,incentivising financing.

SREI’s GDR issue comprised the followingfeatures:

• An aggregate of Rs. 1530 million (USD35 million) raised through the GDR issue

• A strategic route to broad-base investorprofile, the offering attracted strongdemand from investors across Asia,U.S.A., U.K. and Europe

• Each GDR represented four underlyingequity shares of the company

• Priced at USD 4.05 per GDR, equivalentto Rs. 44.30 per equity share, the GDRswere placed through a book-buildingexercise

• 8.65 million GDRs issued, equivalent to34.59 million shares, to overseasinvestors, thereby improving thecompany’s debt-equity ratio from 6.06(pre-issue) to 3.12

• GDRs listed on the London StockExchange on 21st April 2005

As a result, the GDRs will make it possiblefor the company to mobilise an additionalRs. 12000-13000 million in debt to financemore infrastructure schemes in aprofitable way, driving profitable growthacross the foreseeable future.

Priced at USD 4.05 per GDR,equivalent to Rs. 44.30 perequity share, the GDRs wereplaced through a book-building exercise

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INSIGHT ANDARE ABOUT CUSTOMISINGSOLUTIONS

QUIPO*In April 2002, SREI started commercialoperations of QUIPO, India’s firstinfrastructure equipment bank, with theobjective to provide customers withworld-class equipment on rent.

* Created with the support of Construction Industry Development Council (CIDC), the apex industry body formed by the PlanningCommission and the Ministry of Surface Transport, with equity participation from international financial institutions like IFC(Washington), FMO (Netherlands), Swedfund (Sweden) and Ingersoll Rand (a leading construction equipment manufacturer).

INNOVATION

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A number of realities made the provisionof an infrastructure equipment bank timelyand imperative:

• Inability of contractors to mobilise state-of-the-art equipment resulting in inefficientproject implementation.

• Absence of the concept of organisedrenting making access to constructionequipment expensive.

• Direct investments by contractors in theownership of equipment, which often lieunutilised for long periods, resulting in aloss of value of capital.

• Difficulties in selling equipment byowners and onward redeployment bysmall equipment providers following thecompletion of projects.

QUIPO has emerged as a path-breakingconcept in the following ways:

• It enables SREI’s financed assets to bebanked with QUIPO, thereby enhancingprofitability, following their tenure.

• It enables contractors to purchase, sell,rent and deposit equipment in addition toobtaining maintenance services by trainedprofessionals.

• It facilitates in the marketing of re-possessed assets and assets depositedby owners.

• It helps users rationalise the cost ofdirect purchase and minimise therecurring expenditure on maintenance.

• It highlights the advantage of rentingover owning and backs it up with asystematic and credible service delivery.

In only its third year, QUIPO’s existencehas translated into the following benefitsfor customers:

• Option to choose from a large variety ofequipment.

• Option to the customer to shift toadvanced machinery in the case of assetobsolescence.

• Option to return the assets following adecline in utilisation.

• Option to purchase at existing marketrates after the contracted period.

Quipo helps usersrationalise the cost of directpurchase and minimise therecurring expenditure onmaintenance

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INSIGHT ANDARE ABOUT MAKING THEFIRST MOVE

Going global2004-05 is a watershed year forSREI as the company expandedoverseas – the first step towardsrealising its vision and mission. Thecompany, through its Germansubsidiary IIS InternationalInfrastructure Services GmbH,established operations in Germany,U.K. and Russia through separatecompanies.

INNOVATION

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SREI’s strength lies in its in-depthknowledge of the infrastructure businessand the expertise it has developed in thefield of infrastructure financing in Indiathrough the provision of customisedsolutions. SREI now intends to leveragethis experience in countries whereinfrastructure development has entered aphase similar to that of India or whereIndia was a few years ago. In the view ofthis, the Russian infrastructure sectorfigures prominently in SREI’s businessstrategy.

SREI now intends to leveragethis experience in countrieswhere infrastructuredevelopment has entered aphase similar to that of India

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INSIGHT ANDARE ABOUT BECKONINGTHE FUTURE

Strategic alliance withGoIndustry Henry ButcherIn February 2005, SREI, through Quipo, floated India’sfirst infrastructure and industrial asset auctioningservice-provider named Henry Butcher InternationalValuers & Auctioneers Pvt. Ltd., a strategic joint venturewith the London-based GoIndustry Henry Butcher, adivision of the GoIndustry Group – a leading industrialasset management company in the world.

INNOVATION

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The infrastructure and industrial asset-auctioning company was created toprovide the right service at the right timefor the following reasons:

• Increasing empowerment of commercialbanks and asset reconstructioncompanies to seize the assets ofdefaulting borrowers.

• Inability of the repossessing agencies tore-deploy the seized or non-performingassets (NPAs) and realise their true value.

This venture was created to provide thequickest and cost-effective avenue totransform the assets into cash, in line withthe Government policy on securitisationand reconstruction of financial assets. Thecompany will be of immense benefit tovarious asset reconstruction companies,

as it will help as a catalyst in realisingcash out of NPAs. The joint venture willenable financial institutions, banks,government bodies and corporates torealise the best value of their assets,making restructuring increasingly viable inIndia. The additional option of a globalauction of assets will make this ventureincreasingly attractive.

This venture will strengthen SREI’sbusiness model by adding a riskmitigation measure, which is the risk ofnot being able to generate adequate valueout of repossessed equipment. As aresult, SREI can repossess in case ofdefault without any fear or apprehensionof losing value in the case of resale /disposal of assets.

SREI’s venture is aimed toprovide the most rapid andcost effective avenue totransform the assetsinto cash

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messageChairman’s

It is indeed my pleasure to addressyou all for the very first time.

We stand at a crucial juncture inIndia’s history. Our country is verymuch in the global limelight.Presently ranked the tenth largesteconomy in the world, it isperforming well, having emerged as aglobal services hub. The governmentis keen to transform India into amanufacturing powerhouse as well.To make this possible, concertedefforts are on to strengthen thecountry’s infrastructure. Yourcompany, being in the business ofcreation and financing ofinfrastructure, is all set to participatein the impending infrastructureboom.

It is gratifying that your company hasattained consistently high growth

over the past several years, giving usall a very fair degree of confidence inits performance in the present aswell as future. The investors and thecapital markets have perceived thecompany’s potential which isevidenced sufficiently by the fact thatin the past twelve months its marketcapitalisation has gone up by morethan three times. While the prospectsfor our company never looked better,I would like to take this opportunityto flag some issues pertinent to theNBFI sector of which SREI is animportant member and which in myopinion are slowing the growth of thesector as a whole.

A robust banking and financial sectoris critical for fully activating theeconomy and facilitating its quickergrowth. Realising the potential of thesector and its importance in the

economy, the government and theReserve Bank of India haveundertaken substantial reforms in thepast few years resulting in thecountry’s financial sectorundergoinga virtual metamorphosis.However, the benefits of the reformshave largely left the NBFIsuntouched.

Notwithstanding NBFIs’ crucial role inchannelising funds to the small andmedium enterprises sector, a sectorwhich hitherto has not received fromthe banking sector the kind offinancial support and attention itdeserves, the regulatory and taxationregimes governing NBFIs in India donot seem to appreciate theircomplementary role and are hardlyconducive to their realising fullpotential. The result is that in mostcases the growth of such companies

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individually and of the sector as awhole is unusually labored andpatchy.

Leasing, which is the predominantmode of financing by NBFIs, is a veryimportant tool for capital formation.In developed economies like U.S.A.,Japan, Germany, Italy, France, U.K.,Canada etc., it enjoys a high marketpenetration. Compared to this,leasing industry in India is grosslyunderdeveloped and our leasingpenetration is miniscule. Whileleasing companies in United Statescontribute over 30 per cent to thenation’s capital formation, in India itis a meagre 3 per cent. Unmistakably,in our financial policy planning andformulation there is either anavoidable reservation or a lack ofunderstanding or both on theimportance of leasing and howpotent a role it can and should play ininfrastructure build-up. As the countryreadies itself for the big push ininfrastructure creation, we in ourcapital-starved economy can hardlyafford to overlook or underestimatethe role of leasing.

NBFIs have so far played a well-defined role in the Indian financesector, as an intermediary betweenwholesale financiers and retailborrowers and have dependedtraditionally on funds from diversesources like banks, financialinstitutions and multilateral lendingagencies. For the better amongstthem external commercialborrowings have been an importantsource for long-term funds atcommercially viable rates as publicdeposits from the domestic markets

have had to be increasingly curtailedbecause of their shortening tenuresand increasing costs. Recentrestrictions on the NBFIs fromaccessing ECBs have, therefore,been a serious impediment to theirgrowth. Fortunately, lately there hasbeen some encouraging news on thisfront as there is now a possibility ofthese restrictions being relaxedwhereby the NBFIs would again beallowed to raise ECBs. The necessarynotifications to effectively implementthe relaxations are to be issued andwe hope these will come soon,removing a big impediment faced byus in implementing our own growthplans.

As regards the future outlook, veryclearly the emerging businessopportunities in infrastructure arehuge. Estimates of total investmentsnecessary to spruce up the country’sinfrastructure over the next ten yearsrange from USD 150 billion to USD500 billion according to varioussources. There is no denying thatprivate sector participation would beessential for bridging the resourcegap as well as bringing in state-of-the-art technology. The country,therefore, must have a policyframework conducive to attractingprivate investment of such highorders. Roads and telecom are twosectors where the private sector hasalready made huge investments.Government is also taking steps toinvolve private sector in developingthe country’s port and airportinfrastructure. On the power front,apart from stepping up generation,the government is also initiating

major reforms towards theprivatisation of transmission anddistribution. Urban infrastructure isalso getting a facelift as a result ofthe government’s willingness toinvolve the private sector in theprocess.

In this backdrop, assuming that therewill be a clarity and consistency inmatters of policy relating togovernmental and regulatory controlover NBFIs, we are confident that thefuture holds lots of promise forcompanies like yours which haveinfrastructure financing as their mainfocus. Your company’s knowledge ofthe infrastructure business, its assetmanagement capabilities and itsability to foresee and customiseaccording to customers’ individualneeds provide it with an edge over itscompetitors.

We are fully aware that theopportunities in the Infrastructure willbe many and diverse in nature. Whilethis provides impetus for oursustainable growth, your company isalso duly careful that from amongstthe multiple choices of attractivebusinesses available we always makethe right choice. Your company’sbusiness model and its riskmanagement policies andmechanisms are being constantlyreviewed and upgraded to ensurethis. The entire SREI team isdedicated to make the SREI brandsynonymous with successfulinfrastructure financing in India.

M. S. Verma

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From the Vice-Chairman& Managing Director’s desk

The buoyancy in the infrastructuresector in India has unshackledimmense opportunities for all theplayers in this segment. We havenever earlier seen such business inthe sixteen years since our inception.This is only the beginning, which alsocorroborates our conviction thatinfrastructure had been and will bethe future of India and our company.

The financial year 2004-05 ended ona positive note for SREI. Given thepolicy thrust on infrastructure, I amupbeat about SREI maintaining andeven accelerating its growth, myoptimism being founded on thepremises of a favourable policyenvironment and strong Companyfundamentals.

I take pleasure in announcing thefollowing:

> SREI not only enjoys a countrywidenetwork, but also has a presence inthe U.K., Germany and Russia.

> SREI got listed on the LondonStock Exchange through a GDRissue.

> SREI ranked 438th in theprestigious ET500 list (the top 500

Indian companies as per TheEconomic Times, the country’sleading business daily), which wouldhave been better following our GDRissue.

What makes SREI’s presence specialare the following factors:

> A singular focus on theinfrastructure sector, the driver of anyvibrant economy.

> A business model built around itscore strengths of infrastructureequipment financing, infrastructureproject financing and financing ofrenewable energy equipment.

> A bouquet of financial services toprovide greater value to itscustomers leading to a completefinancial solution.

Our focused activities have reapedrich dividends. We have been able toretain our market leader status in thefield of infrastructure equipmentfinancing. SREI’s brand recallamongst its existing and potentialcustomers has strengthened. Ourvendors have become our principalpartners in progress.

And all this has happened in the faceof stiff competition from banks andother financial institutions. This hasbeen possible because of our asset-centric approach and our customerfocus. Our approach has always beenradically different to that of banks.We are essentially asset providers,whereas banks are loan providers.While banks would finance acustomer based on his credentialsand past credit history, SREI places agreat importance on the tangiblesecurity of the asset that it finances.SREI, through its 16 years ofexperience in this field, cancategorise equipment in standardand non-standard categories andeven in cases of default bycustomers, SREI can repossess anddispose the equipment in a mannerthat can fetch it the highest value. Inaddition, the inherent flexibility in ourapproach and our knack forcustomising our packages as perclient’s convenience, provide theadded comfort level to ourcustomers. Our in-depth knowledgeof the assets we finance and how tomake the best use of them remainour USPs.

Mr. Hemant Kanoria reviews the Company’s progress in 2004-05

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SREI’s principal competitive edge isits knowledge, enriched by cross-industry experience and out-of-the-box thinking. The result is acombined wisdom and intellectleading to profitable and sustainablegrowth.

At SREI, a sense of innovation hasbeen sharpened by a merit-respecting and result-rewardingenvironment. This has helped thecompany stay at the forefront of‘innovation’, compete successfullywith established players andtransform challenges intoopportunities. As an extension,‘Insight and Innovation’ are intrinsicto our existence and represent thecentral theme of this report.

The precursor to innovation is insight.Only when one gets a thoroughgrasp on his business model and hasa clear understanding of theexpectations of the variousstakeholders, can he bring aboutinnovation. SREI has thrived oninnovation over the years. SREI was aforerunner in bringing the concept ofmezzanine capital into India. SREIcame up with the idea of theequipment bank Quipo, the first of itskind in India. SREI had taken assetfinancing to a different level byproviding additional value-addedfinancial services in order to serve itscustomers better. Another exampleof remarkable innovation is the‘Paison ki Nilami’. This event, whichwe started last year, is a uniqueinitiative of bringing together buyers,vendors and financiers on a commonplatform and integratingentertainment into the way of doingbusiness. The bulk deals that wehave entered into with reputedvendors like Tata Motors, Volvo and

others are aimed at providing anintegrated solution to customers.When the NBFI sector wastemporarily not allowed to raiseECBs, it was innovative thinking thatprompted us to raise additionalresources by way of a GDR issue andin the process getting ourselveslisted on the London StockExchange. Our partnership withHenry Butcher International Valuers &Auctioneers Pvt. Ltd. through Quipois yet another example of instance ofinnovation to add value to ourservices. This venture would not onlyhelp SREI in fetching the best valuefor its own assets, this would alsoextend such services to othercompanies and governmentagencies. Our insight into ourbusiness and our knack forinnovation has given us theconfidence to venture overseas andleverage on our Indian experience incountries like U.K., Germany andRussia.

At SREI, technology resides at theheart of this insight and innovation,resulting in informed decision-makingin the following ways:

> The seamless integration of on-field and front-end experience hasbeen instrumental in effecting back-office brainstorming sessions,feedback and ideas leading toinnovation.

> The deployment of MicrosoftNavison Axapta has led to bettercustomer service, improvedproductivity, smoother fund flows,reduced costs, effective projecttracking and streamlined businessprocesses effectively addressingback and front office integration.

Thus, it has been our persistent

endeavour to invent and explore newways of doing business with thefollowing objectives:

> To climb the value chain and serveour customers better.

> To provide financial solutionsacross the complete servicespectrum namely equipment finance,hire purchase, leasing, equipmentrental, sale of second handequipment besides offering valuableadd-ons like insurance products,capital market services, advisoryservices, foreign exchange services,venture capital and other alliedservices.

> To customise deals aroundspecific customer needs.

The NBFI sector, following a phase ofconsolidation in India, has evolvedstronger over the years. Thegovernment is now keen to create afacilitating environment for thissector.

We are in for exciting times ahead.While new opportunities open up inthe various infrastructure sectors,SREI is confident to take on thechallenges that accompany suchopportunities. We are adequatelygeared up for the future. We lookforward to crossing new frontiers andsetting new standards for ourselvesrelying on the dual advantage of ourinsight and innovation. And all ourendeavours would be aimed atenhancing customer delight, becauseour objective is to partner ourcustomers towards their continuedand galloping success.

Hemant Kanoria

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• Market leadership in India’s equipment finance sector

• Insight into infrastructure and construction equipment finance segments

• Innovative funding mechanism and equipment utilisation

• Access to low cost funds from Indian and international institutions

• Strong vendor relationship and established client base

• Superior understanding of customer needs

• Absence of an asset-liability maturity mismatch

• Low NPA levels and superior asset quality

• Robust business model with value-added services

• Strong financial growth

• Experienced management team

• Constant technology upgrades

• Wide branch network enabling a deeper geographic penetration

• Overseas presence thereby diversifying geographical risk

SREI’S KEY STRENGTHS

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OVERVIEWIndia offers one of the biggestinfrastructure opportunities in theworld. The sectoral scope is derivedfrom the following numbers:

• One of the few countries in theworld with an average annual GDPgrowth rate in excess of 6.0 per centover the last 10 years; economyestimated to grow at an average 7-8per cent per annum over the next fiveyears.

• A Rs. 100 billion Special PurposeVehicle to be launched to financeviable infrastructure projects.

• Funds for Inter-Institutional Group(IIG) with a corpus of Rs. 400 billionannounced by the Indian FinanceMinister, P. Chidambaram in July2004.

• India, the most optimistic countryin a 38-country study with 88 percent of those polled believing thatthe economy will improve in the next12 months (source: AC Nielsen).

• China and India expanding at fivetimes the pace of Europe(source: AC Nielsen).

OPPORTUNITY • India’s construction industry,estimated at over USD 25 billion,accounts for more than 6 per cent ofits GDP. It has grown at about 6.3 per

cent per annum between 1995-96and 2003-04, and at 6.7 per cent in2004-05 (CSO estimate).

• Expenditure on infrastructure for2004-07 is likely to be over 1.5 timesthe corresponding figure for 2001-04.

• For roads and the power sectors,the spending in 2004-07 is almosttwice the expenditure in thesesectors in 2001-04.

• Allocations under India’s RuralInfrastructure Development Fundreported its biggest ever increase inquantum and percentage terms – 45per cent and Rs. 25 billion in 2004-05,over the previous year.

• An increase in expenditure on ruralhousing (Indira Awas Yojana) by Rs. 2.5 billion in 2005-06.

• A Rs. 16 billion proposal to connectvillages with all-weather roads inadditional budgetary support underthe Prime Minister’s Gram SadakYojana.

• Increase in the expenditure (budgetestimate) on the National HighwayDevelopment Project from Rs. 47.71billion in 2004-05 to Rs. 62.21 billionin 2005-06.

• A rural electrification programmecovering 1,25,000 villages in fiveyears, for which the finance ministerprovided Rs. 11 billion.

Business overviewA focus on Indian infrastructure

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Rural InfrastructureDevelopment Fund (RIDF)

allocations (Rs. billion)

Road

Power

Oil and gas

Ports/airports/shipping

Railways

Telecom

Increase in Indian infrastructurespending (Rs. billion)

FY 01-04

FY 04-07

330

40038090

320

660

630

850660

160480

730

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RoadsSegment-wise outlook

Roads

OVERVIEWIndia’s total infrastructure investment is estimated ataround USD 40 billion, requiring direct government aswell as private sector participation [through Build-Operate-Transfer (BOT), special purpose vehicles andannuity projects].

OPPORTUNITY• Increase in the central outlay for India’s road sectorfrom Rs. 88.62 billion in 9th Plan to Rs. 347.9 billionin 10th Plan, an increase of a staggering 292 percent.

• Allotment of Rs. 50 billion to Pradhan Mantri GramSadak Yojana for rural connectivity.

• 100 per cent customs duty exemption on roadbuilding equipment not being produced in thecountry.

• Income tax exemption on income derived fromNHDP for 10 years; grant of up to 40 per cent onBOT projects; exemption for National HighwayAuthority of India (NHAI) bonds from capital gains

NATIONAL HIGHWAYS DEVELOPMENTPROGRAMME (NHDP)

• Four-laning 11,646 kms and six-laning 1,500 kms ofhigh-density corridors, connecting India’s four metrocities as well as its extreme points (Srinagar withKanyakumari and Silchar with Porbandar).

• Additional 48 road projects covering 10,000 kmsand costing Rs. 400 billion announced in the 2003-04Budget.

• Funding agencies comprising World Bank, AsianDevelopment Bank, Japan Bank of InternationalCooperation and BOT proposals.

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PowerSegment-wise outlook

OVERVIEWIndia’s power demand increases 1.5 per cent for every oneper cent increase in its GDP, indicating the criticalrequirement of power in a growing economy. To support a6-7 per cent GDP growth over the next five years, anannual 10 per cent increase in power generation capacityis being estimated. The investment going into the industryis estimated at around 30 per cent of all the newinvestment coming into the country.

OPPORTUNITIES• From 1,500 MW in 1947, generating capacity increasedto 89,100 MW in 1998 and 108,930 MW in August 2003

(2004 data), indicating accelerating investment.

• Current energy shortage at about 9 per cent with a peakshortage of about 12 per cent in India.

• A 157,107 MW of generating capacity requirement by2012 (incremental 41,000 MW in the 10th Plan), accordingto The Ministry of Power.

• A commissioning of 30,000 MW by 2012 (private playersand states to add 45 per cent, Centre the rest), by theMinistry of Power.

• An increase in the power sector outlay from Rs. 445billion in the 9th Plan to Rs. 1434 billion in the 10th Plan.

• Techno-economic clearance bythe Central Electricity Authority for55 private projects with a totalcapacity of 28,445 MW.

• The Electricity Act was passedin June 2003 and is aimed atencouraging large-scale private

sector participation andcompetition not only in generationbut also in the transmission anddistribution of electricity, This Act,amongst other things, is expectedto facilitate delicensed powergeneration and captivegeneration.

Plan period Plan demand Energy needs

10th Plan (2002-07) 115,705 MW 719 bn units

11th Plan (2007-12) 157,107 MW 975 bn units

12th Plan (2012-2017) 212,725 MW 1,319 bn units

Demand forecast:

The planned demand for the 11th Plan period will be around 1.5 timesthat of the 10th Plan period, and the planned demand for the 12th Planperiod is around twice the 10th plan demand. This implies that demandfor power will almost double between 2007 and 2017, telling acompelling story for investment needed in this sector as well as theinfrastructure sector.

Power demand-supply position (energy in million units):

Year Requirement Availability Shortage % Shortfall

1990-00 480,430 450,594 29,836 6.2

2000-01 507,216 467,400 39,816 7.8

2001-02 522,537 483,350 39,187 7.5

2002-03 533,537 485,452 48,085 9.2

2003-04 559,264 519,398 39,551 7.1

Shortage in peak demand (energy in million units):

Year Peak demand Peak supply Shortage % Shortfall

1990-00 72,669 63,691 8,978 12.4

2000-01 78,037 67,880 10,157 13.0

2001-02 78,441 69,189 9,252 11.8

2002-03 82,651 72,706 9,945 12.2

2003-04 84,574 75,066 9,531 11.2

Source: 16th Electric Power Survey Report

Source: 16th Electric Power Survey Report

Source: 16th Electric Power Survey Report

Total installed capacity (as of July 31, 2004):

Thermal 78,491 MW

Hydro 29,625 MW

Nuclear 2,720 MW

Wind 1,870 MW

Total 112,706 MW

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PortsSegment-wise outlook

OVERVIEWIndia has 12 major ports (six on the east coast and sixon the west coast) and 185 minor ports situatedalong its 7,517 km long coastline. 95 per cent ofIndia’s foreign trade by volume (about 70 per cent byvalue) involves sea transportation. Of India’s totalvolume of international trade, about 90 per cent ispassed through its ports. In 2004-05, India’s exportsgrew 23 per cent while imports grew 32 per cent.With continuing economic buoyancy, internationaltrade is set to increase, requiring superior portfacilities.

OPPORTUNITY• Spare capacity at India’s major ports in the lastthree years declined from 80 million tonnes to just 13million tonnes in 2004-05

• Pre-berth waiting time for ships increased from4.86 hours in 2003-04 to 6.08 hours in 2004-05

• India is expected to face a capacity shortfall of 80million tonnes by 2010 (source: LEA International)

Since the quantum of trade between India and itstrading partners is expected to increase, there is anurgent need for better port infrastructure.

THE SAGAR MALA PROJECT

• Envisages capacity expansion and modernisation ofIndia’s maritime transport infrastructure comprisingits ports, shipping and waterways.

• India’s major ports will be connected to the GoldenQuadrilateral through high-speed expressways andrail connectivity.

• The programme will require Rs. 1000 billion ininvestments over 8-10 years.

• The 10th Plan has proposed a number of schemesto encourage private participation in India’s portdevelopment.

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MiningSegment-wise outlook

OVERVIEWNearly 89 minerals are mined in India, the industryaccounting for 3 per cent of the country’s GDP. Thepublic sector accounts for 85 per cent of India’smining activity; this exposure will be increasinglyreplaced by private sector participation as 100 percent FDI is allowed in the exploration and mining ofmost materials in non-strategic sectors.

OPPORTUNITY• Mineral exports constitute 16 per cent of India’stotal exports.

• India is the world’s largest producer of mica, thirdlargest producer of coal and lignite; it ranks amongthe top producers of iron, bauxite, manganese oreand aluminium.

• 85 billion tonnes of India’s mineral reserves remainto be exploited.

• Foreign investment of USD 940 mn in India’smineral sector has been approved, comprising around73 projects.

MAJOR UPCOMING PROJECTS

• South Korean steel giant Posco has sealed a USD12 billion investment deal with the OrissaGovernment for a 12 million tonne plant, the highestFDI into India across any sector.

• Mittal Steel, the world’s largest producer of steel,has proposed to set up a Rs. 250 billion (USD 5.5billion) unit in Jharkhand to produce 10 million tonnesof steel per annum.

• Tata Iron and Steel Company Ltd. will invest nearlyRs. 160 billion in Orissa. This investment from thesteel major will be in three different projects over thenext five years.

• The Aditya Birla group flagship Hindalco will investRs. 110 billion for the proposed integrated aluminiumproject in Orissa, one of the biggest in the region inrecent years.

• Jindal Steel and Power Ltd., signed a memorandumof understanding (MoU) with the Orissa Governmentin October 2004 to set up a 6 million-tonnes-per-annum (mtpa) steel mill in the state.

• Kolkata-based Rs. 11 billion Visa Group ofIndustries is setting up a 1 million tonne integratedsteel and stainless steel plant at Jajpur in Orissa withan estimated investment of Rs. 17 billion, comprisingcaptive mining.

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48

energyRenewable

Segment-wise outlook

OVERVIEWThousands of villages in India are distant from stateelectricity grids. The cost of reaching conventionalenergy sources to these pockets would be expensive.Renewable energy, as has been demonstrated,represents a lower cost option in such instances,providing the basic means of energy quickly andeconomically.

OPPORTUNITY• The solar market in South Asia is dominated byIndia on the supply and demand side.

• A flourishing domestic photo voltaic (PV) industryhas developed in the large Indian market, with a long-term experience of the technology.

• India is the only country in Asia with a governmentdepartment solely devoted to the promotion andsupport of renewable energy.

• India’s national energy policy is to achieve a 10 percent share of electricity from renewables by 2012.

• Various PV incentives have been introduced,including a 50 per cent capital subsidy for solar homesystems and subsidies of 50 per cent and 67 per centrespectively for isolated and grid-connected solarpower projects, which do not exceed a capital cost ofUSD 5.50/Wp. A solar lantern subsidy is also availableof up to USD 42.

• The Greenpeace/European Photo Voltaic IndustryAssociation (EPIA) scenario is based on an averagegrowth rate between 2000 and 2020 of 35 per cent.By 2020, the Indian PV market would have a marketvolume of more than USD 5 billion a year.

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Better roads.More houses.Cleaner water.Uninterrupted electricity. The incidence of these over the next few years makes India one of the most attractive infrastructureopportunities in the world.

Opportunity

INCREASING INFRASTRUCTUREFOCUSTo connect all villages with apopulation of 1000 (or 500 inhilly/tribal areas) with a road by theyear 2009; high density highways tobe widened as a part of NationalHighway Development Project notforming a part of the GoldenQuadrilateral or the North-South andEast-West corridors under BharatNirman Yojna, approved by the PrimeMinister for the development of rural

India. The project will beimplemented over a period of fouryears.

To construct 6 million additionalhouses for the poor within the nextfour years; about 1.5 million newhouses to be constructed in 2005-06under the Indira Awas Yojana.

To provide drinking water to theremaining 74,000 habitations that areuncovered by 2009;

To reach electricity to the remaining

1,25,000 villages and offer electricityconnection to 230 million householdsin five years; a 33/11 KV substation ineach block and at least onedistribution transformer in eachvillage.

To cover seven-mega cities with apopulation of over a million and someother towns under the National UrbanRenewal Mission; outlay of Rs. 55billion in 2005-06 including a grantcomponent of Rs.16.5 billion.

* Includes provision for rural housing but excludes provision for rural roads.** Includes provision for rural roads.*** Excludes provision for rural housing.

Central Plan outlay by sectors (Rs. billion)

Sector 2004-05 2004-05 2005-06

Budget estimation Revised estimation Budget estimation

Agriculture / allied activities 46.43 47.99 64.25

Rural development* 92.39 111.96 139.92

Irrigation / flood control 4.58 3.65 5.24

Energy 467.88 435.57 581.91

Industry and minerals 83.49 78.33 119.98

Transport** 306.96 263.32 424.17

Communications 117.30 91.32 121.40

Science, technology & environment 56.44 52.94 70.75

General economic services 99.82 25.11 45.39

Social services*** 357.39 393.78 533.84

General services 4.52 4.21 5.68

Grand total 1637.20 1508.18 2112.53

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Quicker financing ofinfrastructure equipmentand projects. Morecredit. Longer maturity.Comprehensive service.

Advantage SREI

INFRASTRUCTURE EQUIPMENTFINANCING• SREI finances new and usedconstruction equipment.

• Market leadership in the segmentwith around 20 per cent marketshare.

• Combines financing with athorough knowledge of equipmentand use leading to prudent advice onthe right equipment for the rightneeds and terrain.

• Financing comprising excavators,compactors, dozers, cranes, heavy

dumpers, compressors, surfaceminors, loaders, motor graders,backhoe loaders, tool carriers, roadequipment, mechanical / sensorpavers and planers, among others.The company also financescommercial vehicles and cars.

• Funded assets worth Rs. 13003million in 2004-05 as against Rs. 10062 million in 2003-04.

INFRASTRUCTURE PROJECTFINANCING• SREI finances projects in threesegments - roads, power and ports.

• It finances bridges, approach roads,bypasses in the road sector;independent power plant (IPP),captive power plant (CPP) and theirequipment in the power sector; portequipment, private berths andcontainer handling jetties in the portsector.

• It provides long-term customisedfinancial solutions.

• Funded projects worth Rs. 3058.5million in 2004-05 as against Rs. 628.8 million in 2003-04.

CORE SECTORS

• Infrastructure equipment financing

• Infrastructure project financing

• Renewable energy equipment financing

VALUE-ADDED SERVICES

• Infrastructure Advisory and Capital MarketServices (SREI Capital Markets Ltd.)

• Insurance Broking Services (SREI InsuranceServices Ltd.)

• Venture Capital (SREI Venture Capital Ltd.)

• Foreign Exchange Services (SREI Forex Ltd.)

• Retail Financial Services (SREI Money Mall Ltd.)

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RENEWABLE ENERGY EQUIPMENTFINANCING• SREI was one of the first Indiancompanies to finance renewableenergy systems.

• It finances solar PV cells, solarhome lighting systems, solarlanterns, solar water pumpingsystems and solar thermal systems,among others.

• It enjoys refinancing from IndianRenewable Energy DevelopmentAgency (IREDA) and IFC.

• Funded renewable energy productsworth Rs. 38.2 million in 2004-05 asagainst Rs. 42.5 million in 2003-04.

CAPITAL MARKET SERVICES• SREI Capital Markets Limited (SEBIregistered Merchant Banker andUnderwriter) provides a gamut ofmerchant banking and advisoryservices.

• These services comprise theprivate placement of debt, IPO issueof equity, managing rights issues,advisory and consultancy services forcustomers across various verticals onefficient fund management andresource mobilisation.

FOREIGN EXCHANGE SERVICES• SREI Forex Limited (RBI registeredfull-fledged money changer) deals inforeign currencies of 31 countries.

• It also deals with TravellersCheques through back-to-backarrangements with American Expressand Citibank.

• The company is licensed to operatefrom four centres in India (Kolkata,New Delhi, Mumbai and Bangalore).

INSURANCE• SREI Insurance Services Limited[Insurance Regulatory DevelopmentAuthority (IRDA) registeredComposite Insurance Broker]provides a comprehensive insuranceservice especially in the generalinsurance sector for financedequipment.

• As a composite broker for theinsurance sector, it facilitatescustomers in the areas of life, non-lifeand re-insurance.

VENTURE CAPITAL • SREI Venture Capital Limited[Securities and Exchange Board ofIndia (SEBI) registered VentureCapital Fund] funds attractive

ventures through supplementarycapital, helping the projects achievetimely financial closure.

• SREI, through SREI Venture CapitalLtd., has launched the Medium AndSmall Infrastructure Fund (MASIF),aimed at providing long-term capitalto small and medium players whoplay a key role in the building ofinfrastructure in a country like India.The target size of this fund is Rs. 1billion.

• SREI has also launched the IndiaGlobal Competitive Fund (IGCF) withan object to assist/support Indiancompanies to expand their operationsso that they can achieve global sizeboth through organic and inorganicgrowth. The target size of this fund isRs. 10 billion.

RETAIL FINANCIAL SERVICES• SREI Money Mall had beenestablished to be a one-stop supermarket for all financial products andservices.

• It is involved in a wide array ofactivities namely provision of foreignexchange, credit cards, loanproducts, insurance products andinvestment services.

KEY FINANCIAL RATIOS

2002-03 2003-04 2004-05

Gross interest spread (%) 4.17 5.37 6.81

Net interest margin (NII / Average earning assets) (%) 5.11 5.92 7.19

Net profit margin (%) 12.29 17.67 21.78

Return on average equity (%) 27.33 38.24 52.95

EPS (Rs.) 2.74 3.84 5.31

Book value (Rs.) 24.47 26.75 30.51

Total assets under management (including securitised assets) in Rs. million 14567 18348 22405

NPAs - gross NPAs as a % of gross assets(as per RBI guidelines) 1.10 1.08 1.28

NPAs - gross NPAs as a % of gross assets(as per FLI guidelines) 1.99 2.53 1.63

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SREI’s business divisions

The Indian construction equipmentmarket is one of the most attractivespaces to be present in.

As largest-ever investments are beingmade in the country’s roads, bridges,commercial malls, industrialestablishments and residentialhousing complexes, the countryrequires more and the latestgeneration of equipment than everbefore to accelerate these projectsand enhance the quality of theirdelivery in line with internationalbenchmarks.

SREI is present at the right place atthe right time. The company is themarket leader in the Indianconstruction equipment financingindustry, financing the acquisition ofheavy earthmoving equipment aswell as imported / indigenous plantand machinery.

The bullishness of the industry isreflected in the growingdisbursements of SREI’sinfrastructure equipment financedivision: from Rs. 10062 million in2003-04 to Rs. 13003 million in 2004-05.

BUSINESS CHALLENGES, 2004-05Despite the increased growth indemand for infrastructure equipmentin India, the year was a challengingone for the following reasons:

• Increasing competition from newplayers, mainly private sector banks.

• Declining margins.

• Temporary restriction on NBFIsfrom mobilising low-cost ECB funds.

• Greater competition in vendorpartnerships.

• Scarcity of long-term resources inthe country, which limits thedevelopment of infrastructure.

• Contradiction in taxation andregulatory regime.

BUSINESS HIGHLIGHTS, 2004-05SREI responded to these challengesthrough the following initiatives:

• Increase in its exposure toequipment finance from Rs. 10062million in 2003-04 to Rs. 13003million in 2004-05.

• Segregation of its business intostrategic and retail groups facilitatingan increased management focus.

• Introduction of innovative schemeslike ‘Paison ki Nilami’.

• Strengthening of its nationalpresence through the setting up ofnew branches.

• Reduction in the cost of fundsthrough effective treasurymanagement.

• Introduction of new products andinnovative marketing strategy.

Gross NPAs (as per foreign financialinstitutions) declined from 2.53 percent in 2003-04 to 1.63 per cent in2004-05, while gross NPAs (as perRBI guidelines) witnessed a marginalincrease from 1.08 per cent in 2003-04 to 1.28 per cent during the sameperiod.

BUSINESS STRATEGY, 2004-05SREI carried out a number ofstrategic initiatives during the yearunder review:

First mover: The companyintroduced innovative products andservices - ‘Paison ki Nilami’ - whichtranslated into a distinctive recall,leading to a high percentage ofrepeat and referral business fromexisting customers.

Relationship approach: As arelationship-enhancing initiative, SREIdid not only finance assets but alsoextended its exposure to thefollowing areas:

• It conducted a detailed analysis ofthe customer’s usage pattern andcash flow cycle, enabling it tostructure a suitable financing planaddressing easy and predictableinstallments.

• It leveraged its rich insight into

Business divisionInfrastructure equipment finance Focus: Construction, mining and transportation equipmentDisbursements, 2004-05: Rs. 13003 millionDisbursement growth, 2004-05: 29.2 per cent

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equipment of different brands toadvise intending customers on theirutility leading to an informedpurchase as a first step towardsprofitable deployment.

• It employed its extensiveknowledge into the existing realitiesof the marketplace to suggest wherethe assets could be most profitablydeployed, enabling it to extendbeyond a financier to a consultant.

In doing so, the company graduatedbeyond a transaction focus into afriend, philosopher and guidefocused on enhancing the businessprofitability of its customers.

Value chain: SREI provided financialsolutions across the complete servicespectrum: equipment finance, hirepurchase, leasing, equipment rental,sale of second hand equipment and

the replacement of old equipmentwith new. This comprehensivepresence enabled the company tocustomise deals around specificcustomer needs as well as make aprompt and profitable redeploymentof its assets.

Product choice: SREI widened thefinancing of a larger number ofproducts. To popularise their use, thecompany conducted road shows inconjunction with equipmentmanufacturers, explaining productattributes comprehensively tocustomers leading to an informedchoice. The re-modelling of existingproducts also catalysed the provisionfor effective solutions for the enduser.

Partnership marketing (advancedmarketing tools): SREI movedbeyond permission marketing

wherein the customer is only reacheddirectly if he is known to thecompany or has been referredthrough another customer. Thecompany initiated the process ofpartnership marketing, wherein thecustomer becomes the partner in themarketing process by referring newclients and earning a reward forreferrals.

BUSINESS OUTLOOKAs per government estimates, India’s infrastructure investmentrequirement stands at USD 150billion over the next 10 years, whichaccording to industry experts isconservative. In this scenario theIndian construction equipmentindustry is poised to maintain its 40 per cent growth per annummomentum and is even likely toexperience faster growth.

SREI’S INNOVATIVE BULK BOOKING SCHEME IS A WIN-WIN FOR ALL STAKEHOLDERS

At SREI, we introduced the concept of the bulk deals in response to the growing incidence of

customers suffering from specialised equipment being out of stock just when their business needed

it the most.

To facilitate the supply of much-needed construction equipment in the least time, the company

entered into direct tie-ups with Tata Motors, Volvo, Ingersoll Rand and JCB. The vendor benefited

through bulk sales without needing extra marketing; the customer benefited through equipment

availability backed by financing arrangements; SREI, the intermediary, benefited through a growing

preference among customers for its service.

This service strengthened the company’s brand in the following ways:

• It accelerated revenue inflow

• It enabled the company to ride the marketing initiative of its vendors

• It represented an entry-barrier against price-led competition

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India’s infrastructure industryrepresents one of the biggestinfrastructure financing opportunitiesin the world.

A number of other realities make thisspace exciting:

• Infrastructure projects are gettingbigger

• Projects are being commissionedfaster

• Projects are involving a moreintensive use of automation

• Increased automation andtechnological upgrades aretranslating into a significantimprovement in the quality andspeed of implementation.

SREI prudently focused on some ofthe largest and fastest growinginfrastructure financing opportunitiesin India - roads, ports and powerprojects - on the grounds that usuallysuch large projects are backed byreputable industrial houses andunderwritten by credible financialinstitutions, minimising relatedfinancing risks.

More specifically, the companyselected to finance the following:

• Bridges, flyovers, approach roads,bypasses in India’s road sector;

• Independent and captive powerplants as well as small-to-mediumsized power projects and equipmentin India’s power sector;

• Port equipment, private berths andcontainer handling jetties in the portsector.

In keeping with the financingrequirements of such projects, thecompany provided funds for the long-term customised to the individualnature of the projects.

The company’s disbursements in thissegment increased substantially fromRs. 628.8 million in 2003-04 to Rs. 3058.5 million in 2004-05.

BUSINESS CHALLENGES, 2004-05India’s infrastructure space offered avast opportunity on the one hand andnumber of challenges on the other,the latter comprising the following:

• A delay in the implementation of anumber of projects following thegeneral elections in India in April-May2004.

• A stagger in the announcement ofnew government projects followingthe elections as the new governmenttook time to settle, reducingdeployment opportunities.

• NBFIs not being allowed tomobilise external commercialborrowings leading to a difficulty inmanaging the cost and tenure offunds.

To overcome these challenges, SREIaims to increase focus and lending. Itis also relying heavily on thepartnership approach whereby itidentifies good projects and thenforms a consortium with promoters,so that apart from lending, thecompany can also explore otherbusiness opportunities like that ofextending fee-based advisoryservices.

BUSINESS HIGHLIGHTS, 2004-05 SREI responded to this environmentthrough the following initiatives:

• An almost five-fold increase indisbursements from Rs. 628.8 millionin 2003-04 to Rs. 3058.5 million in2004-05.

• Maintenance of a zero NPA status.

• Forayed into the financing ofground-handling equipment for airlineinfrastructure.

• Adopted a consortium approachwith promoters to identify soundprojects and provide fee-basedadvisory services apart from fundingprojects.

BUSINESS STRATEGY, 2004-05As a stable long-term strategy, SREIfocused on three core infrastructuresegments - roads, power and ports.

Roads: SREI strengthened itsexposure in this sector throughfinancing BOT (build-operate-transfer)and BOO (build-own-operate) projectswhere the investments could berecovered from the collection of tollfees over a period of time. Thisenabled SREI to commit itself for along tenure or enter into a structure,which would enable it to exit later ata suitable time.

The company leveraged its 16-yearlong presence in this segment of thebusiness to migrate towards complexbut higher-margin projects.

The company, in keeping with itstradition of value-added solutionsover simple financing, delivered

Business divisionInfrastructure project finance Focus: Road, power, port, urban infrastructureDisbursements, 2004-05: Rs. 3058.5 millionDisbursement growth, 2004-05: 486.4 per cent

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complementary services fromconceptualisation and feasibilityreports, consultancy in bidding, trafficanalysis, financial structuring andimplementation. This helped incustomising solutions around specificrequirements.

Power: As a prudent strategy, thecompany focused on small andmedium sized power projects with alow gestation period to preventblocking its funds for the long-term. Itfunded captive power projectsselectively to hedge the risk of non-recovery of dues and increased itspresence in mega power projectsthrough value-added solutions thatguaranteed increased returns as wellas by entering into syndications withlarge banks.

Ports: The company strategised itspresence in the sector throughequipment-linked debt financing andinvestment banking.

BUSINESS EDGE, 2004-05The company continued to leverageinnovation as a means of industryconsolidation. This translated into thedelivery of comprehensive businessand financing solutions through a re-definition of the operational areas.For instance, the company graduated

from a part-financer into an end-to-end solutions provider supported byits ability to re-design and introduceschemes.

BUSINESS ACHIEVEMENTS, 2004-05Roads• Financing of strengthening-widening-upgradation-operation-maintenance of Rewa-Jaisinghnagar-Shahdol-Amarkantaka Road inMadhya Pradesh on a BOT basis.

• Financing of strengthening-widening-upgradation-operation-maintenance of Satna-Maihar-Parasimod-Umaria Road in MadhyaPradesh on a BOT basis.

• Financing the maintenance,rehabilitation and strengthening ofthe existing 2-lane road and wideningto a 4-lane divided highway of 63 kmto 120 km (Bharatpur-Mahua section)in Rajasthan.

Power• Financing a 10.8 MW biomassbased power plant at Madwa,Chhattisgarh.

• Financing a 150 MW combinedcycle gas-based independent powerplant at Hazira, Gujarat.

• Financing a 2.4 MW wind powerplant in Karnataka.

• Financing a 12.5 MW wind powerproject at Dhule site in Maharashtra.

• Financing a 10 MW wind powerproject in Karnataka.

• Financing a 6 MW wind powerproject at Brahmanval site in TamilNadu.

• Financing the capacity addition toan existing captive power plant inOrissa.

• Financing an upgradation projectfor demand side management ofelectricity company in West Bengal.

Airport infrastructure• Financing of ground-handlingequipment for Air Deccan.

BUSINESS OUTLOOK With a national thrust oninfrastructure creation as well as the central and state governmentskeen on providing a facilitatingenvironment for investors, India’sinfrastructure business is poised forexponential growth. The importancegiven to public-private partnershipapproach is encouraging, keeping inmind the need for a huge amount ofresources and the requirement ofstate-of-the-art technology necessaryfor undertaking these projects.

INDIA: ONE OF LARGEST ECONOMIES BY 2050

• Brazil, Russia, India and China (BRIC) would be among the world’s largest economies by 2050

• BRIC growth could decline significantly toward the end of the period, the only exception beingIndia, with estimated growth significantly above 3 per cent by 2050.

• India’s GDP growth is expected to remain above 5 per cent throughout the 50-year period.

• India’s GDP is expected to outstrip Japan by 2032.

• India has the potential to raise its US dollar income per capita to 35 times its current level by 2050.

Source: Goldman Sachs’ BRIC Report

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SREI is not just a financier of largeand structured infrastructure. As aresponsible corporate citizen, thecompany was one of the first in Indiato finance renewable energyequipment, addressing the needs ofthe poor in geographies outside thereach of grid electricity.

Today, SREI finances the value-for-money acquisition of renewableenergy equipment and has around8500 customers.

BUSINESS CHALLENGES, 2004-05• Low awareness level aboutrenewable energy systems andhence their acceptance in the smaller

villages, potentially high demandcentres.

• The market was largely subsidy-driven.

• There was hardly any institutionalframework for micro-credit collection.

• Much of the financing wasachieved through a sales push, notcustomer pull.

BUSINESS HIGHLIGHTS, 2004-05SREI countered the industrychallenges through the followinginitiatives:

• Disbursing Rs. 38.2 million in 2004-05.

• Financing of more than 8500 solarhome lighting systems.

• Financing of 800 solar waterheaters to BHEL employees inBangalore, Bhopal, Secunderabadand Ranipet.

• The leasing of 1200 solar lanternsin Leh, Ladakh and Kargil (Jammu &Kashmir).

• The leasing of 400 solar waterpumps in Punjab, Tamil Nadu,Karnataka, Maharashtra and WestBengal as part of projectsadministered by the Ministry of Non-Conventional Energy Sources,Government of India.

Business divisionRenewable energy equipment finance Focus: Solar energy equipmentDisbursements, 2004-05: Rs. 38.2 million

SREI WAS THE FIRST

COMPANY TO BENEFIT FROM

THE IFC PROGRAMME

• SREI was the first Indian NBFIto benefit under IFC’sPhotovoltaic MarketTransformation Initiative(PVMTI) programme

• This is a World Bank initiativeto accelerate sustainablecommercialisation and financialviability of PV technology in thedeveloping world.

• The company received USD3.5 million under the PVMTIprogramme.

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• Conduct of training workshops foriron and steel manufacturers tocreate an awareness on carbonemission norms in association withClean Development Mechanism(CDM) India.

BUSINESS STRATEGY, 2004-05SREI continued to penetrate deeperinto regions where the demand forelectricity is high and conventionalpower sources inadequate throughactive tie-ups with non-governmentorganisations (NGOs) andgovernment institutes.

Some of the prominent reasons forthe company’s presence in thissegment are as follows:

• Renewable energy equipmentsegment is still a sunrise sector inIndia in which the company enjoys afirst-mover’s advantage.

• Renewable energy equipmentrepresents a futuristic andenvironment friendly power source.

• Renewable energy equipment ismore cost-efficient than alternativesystems in rural India.

The company extends micro-creditthrough NGOs who act as creditappraisers. It also maintains strongrelationships with technologysuppliers, financiers and theGovernment.

BUSINESS OUTLOOKWith the government aiming toprovide ‘Power For All By 2012’ andto create an energy infrastructure tomeet the sustainable developmentobjectives, renewable energy ispoised to play an important role. InIndia, harnessing of solar energy willtake centre-stage especially with ascientifically proven generationpotential of 20 MW per sq.km. Withvast areas of the country still outsidethe reach of grid electricity, the futureof renewable energy technologylooks promising, especially with agovernment committed to developthis sector.

RENEWABLE ENERGY EQUIPMENT:

ENVIRONMENT FRIENDLY, SOCIETY FRIENDLY

• SREI enables people to be self-sufficient in power atgrassroot level

• It facilitates power generation through natural sources in anenvironment friendly manner

• It aids employment generation at local regional levels bysupporting the training of village youth in providing after-salesservice for renewable energy systems

• It helps develop a healthy micro-credit market and createslocal service centre infrastructure

• These help boost the economic and social activities of therural populace and assist in efforts to raise their standard ofliving.

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Corporatestrategy at S EI

CORPORATE STRATEGY AT SREI: INFRASTRUCTURE FOCUS• SREI selected to be present in India’s financial sector as aspecialised player, not a generalised one.

• It selected to focus on India’s infrastructure at a time whenthe sector was in a nascent stage of growth, marked by lowcompetition and low branded presence.

• It banked on the prospective growth of India’sinfrastructure.

CORPORATE STRATEGY AT SREI: CORE COMPETENCE• Within India’s vast infrastructure area, SREI selected tospecialise in select core segments.

• It selected to specialise in infrastructure equipment finance andinfrastructure project finance, the growth of each being linked.

• In the infrastructure project finance segment, the companyfocused on the core sectors of roads, power and port, emergingas a specialist.

• These infrastructure segments were selected on the basis oftheir relative de-risking coupled with rapid growth prospects.

• The company spread its risk through a focus on a number ofsmall and medium enterprise (SME) players executinginfrastructure projects sanctioned by the state/ centralgovernment across the country.

• It foresaw a growing potential in the financing of renewableenergy systems, a sustainable source of cheap energy for India’smillions.

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CORPORATE STRATEGY AT SREI: FINANCING INNOVATION • In a business where banks enjoy an access to lower cost funds, the company hasintegrated innovation into its sourcing policy to remain competitive.

• The company was the first in India to issue mezzanine capital; it became one of the firstNBFIs in India to source foreign equity participation; it was the first in the sector to make aGDR issue and be listed on the London Stock Exchange; it deployed funds through non-conventional approaches like ‘Paison Ki Nilami’.

• It mobilised low cost funds through asset securitisation and mobilisation of commercialpaper, MIBOR/ LIBOR bonds, FCNR(B)s, ECBs and funding from consortium banks.

• It pioneered the concept of organised equipment renting in India under the brand nameof Quipo.

• Through Quipo, it introduced India’s first infrastructure and industrial asset auctioningservice through a strategic joint venture with the London-based GoIndustry Henry Butcher.

CORPORATE STRATEGY AT SREI: FROM RATE TO SOLUTIONS• SREI overcame its size disadvantage in comparison to banks to provideflexible and customised solutions, positioning itself as a solutions provideras opposed to a financier.

• The company increased its distribution width and depth across India – apresence in 34 Indian cities and three foreign countries – in proximity tolocations of infrastructure development.

• It expanded its presence to every node of infrastructure equipment andprojects chain.

• It funded small and first-time users of construction equipment and heavycommercial vehicles in return for assured demand and returns.

• Its comprehensive services comprise:

• Advisory: Advising customers on construction equipmentacquisition based on the proposed use, terrain, term and frequency;use of its comprehensive knowledge in providing solutions relatingto recovery of project costs, efficient fund management andreceivables collection on behalf of its client in infrastructure projectfinance.

• Asset providers: Providing new and pre-owned assets to clients onlease (operating and finance), hire purchase, loan and rentarrangements.

• Idle asset deployer: Minimises asset idling time of existing clients.

• Renting : Introduced the concept of equipment bank in India in theform of Quipo to promote the concept of equipment renting ratherthan owning them.

The company’s mix of sources of funds

Term loans

Bonds & debentures

Public deposits

Commercial paper

83.9%

9.5% 5.00%1.6%

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CORPORATE STRATEGY AT SREI: PROGRESS THROUGHPARTNERSHIPS • Recognition that customers do not only need low costfinancing, but also immediate product availability.

• Bulk discounted deals with reputed equipment providersleading a win-win proposition: relatively low cost equipmentfor users, accelerated sale for manufacturers and enhancedremuneration for the intermediary.

• SREI’s increasing reputation as a distribution-controllingchannel partner for a number of international equipmentbrand names entering India.

CORPORATE STRATEGY AT SREI: EXPANDING PRESENCEGLOBALLY • Focus on India, one of the most attractive infrastructureopportunities in the world.

• Diversification of geographical risk by venturing overseas.

• Starting operations in Russia in order to leverage on SREI’sknowledge and experience in infrastructure financing and toposition itself as a niche player in that country.

• Presence in Germany and U.K. to reach financing institutionsbetter.

CORPORATE STRATEGY AT SREI: ONE-STOP SHOP• SREI and its group companies provide the gamut offinancial services including advisory, insurance, venturecapital, retail financial services, foreign exchange andmerchant banking services.

• The SREI group has evolved into a one-stop shop forfinancing solutions.

• Focus on widening services per customer and enhancingrealisations per customer.

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SREI’S PIONEERING ‘PAISON KI NILAMI’ AND HOW IT IS

CHANGING THE FINANCING BUSINESS

At SREI, we pioneered the concept of an auction of interest rates –

‘Paison ki Nilami’ – in 2004.

It was our strong response to declining industry-wide interest

spreads and deals driven increasingly by rates over service.

SREI entered into relationships with reputed vendors, negotiating

the best prices. Thereafter, it announced a reverse auction – starting

from the highest price - for this select industry portfolio, inviting

only serious users through a screening and registration process.

The auction, attended by 300 participants, grossed Rs. 580 million

of business within only two hours. When second auction was

conducted a couple of months later, the company drew 1100

participants.

By extending to heavy asset items the feel of the retail marketplace,

SREI created a win-win proposition: customers became price-

makers, not price-takers; vendors were able to sell assets

instantaneously; and - SREI strengthened its margins by bringing

the two together.

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Managing risk at SREIAt SREI, the objective of risk management is to ensure that it is adequatelyestimated, controlled and priced to enhance shareholder value.

Risk, to varying degrees and in different forms, is present in virtually all businessactivities of a financial services organisation. In certain activities, it is assumed asa means of revenue generation, while in others it exists by virtue of engaging inthe activity.

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FUNDAMENTAL CONCEPTSRegardless of the type of risk or theactivity that creates the risk, thefundamental concepts in riskmanagement are the same:

• Policy

• Identification

• Analysis

• Assessment

• Measurement

• Monitoring

• Limits

• Communication

At SREI, these concepts representthe foundation of a framework tocontrol risk, its effectivenessenhanced by the active participationof executive and business linemanagement in the risk managementprocess.

KEY PRINCIPLESAt SREI, certain key principlesdetermine how the fundamental riskmanagement concepts are applied toall business and risk types:

• Board supervision: risk strategies,policies and limits are subject toBoard approval. The Board, directly orthrough its committees, regularlyreviews the key risks of the company.

• Decision-making: risk-taking mustbe consistent with the company’sbusiness objectives and risktolerance.

• Independent review: risk-takingactivities are subject to review byunits that are independent of thebusiness lines that generate theactivity.

• Diversification: strategies, policiesand limits are designed with theobjective to ensure that risks are

prudently diversified.

• Accountability: business units,accountable for all risks and relatedreturns, are allocated capital in linewith their risk profiles and corporatestrategy.

• Audit review: individual risks andportfolios are subject to acomprehensive internal audit reviewwith independent reporting to theAudit Committee of the Board by theinternal audit function.

Risk framework The group’s three-point riskmanagement model comprises thefollowing:

1. Management: At SREI, thisrepresents the first line of defense informulating strategy, measurement,establishment and the maintenanceof internal risk controls andmanagement. The managementtakes informed decisions due to itsknowledge of the business,customers, shareholders, investorsand vendors.

2. Risk assessment: At SREI, thesecond line highlights probable andexisting challenges to the riskmanagement framework. The grouppolicies and minimum standards areset up and objectives achievedcomprising a risk managementcommittee.

3. Independent assurance: At SREI,the third line of defense ensures theindependent and objective assuranceof the effectiveness of the company’ssystem of internal controlsestablished by the first and secondlines of defense. This comprises theAudit Committee supported by theInternal Audit department.

Internal controls andinformation systems

SREI employs strict controlscommensurate with its existing sizeand operations. The non-compromising attitude towardsquality ensures that even though thesolutions are customised to cater tothe customers’ needs, theyadequately match the risk-profile ofthe company.

The appraisal processes have beenkept simple, eliminating a majority ofrisks on account of complicatedprocesses. Regular audits andprocess verifications ensure that thecontrols are not compromised with;to the extent it proves fatal for theorganisation.

SREI installed Microsoft NavisonAxapta in 2005, which enables thecompany to gather and structureinformation to get an optimaloverview of its business andcustomers. Axapta also facilitateseasier fund-flow, better customerservice and project tracking besidesintegrating back office with frontoffice. Axapta enables greatercomprehensiveness to the flow ofinformation within the company’sbranches. This is the only ERPsystem, specifically customised foran NBFI in India.

How we manage ourrisksECONOMY RISKThe global and Indian economies,outside the company’s control,represent the biggest risk.

Risk mitigation

As per Goldman Sachs’ BRIC report,India will feature in the top fivefastest growing economies till 2050.

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It is estimated that a USD 60 billioninvestment will be needed over thenext 15 years to strengthen India’sinfrastructure in line with globalstandards. This can only enhanceprospects for a responsible andfocused financing intermediary likeSREI.

MARGIN RISKWhile a declining interest rateenvironment makes financingcheaper for the user, it also narrowsthe spread for financing companies.

Risk mitigation

The company counters this risk in thefollowing ways:

• Through value-added solutionsleading to strong customerrelationships as well as extramargins.

• Through a larger financingthroughput, helping countertemporary profitability declines.

CREDIT RISKCredit risk is marked by irregularity in

the payment of interest andrepayment of principal by theborrower to the company, which maylead to an enhanced cost of capital.

Risk mitigation

• The company ensures adequatesafety and controls in sanctions anddisbursements, comprising thecreation of a department thatindependently reviews a customer’scredit risk.

• A credible managementinformation system (MIS) trackscustomer records leading to informeddecision making.

• Renewable energy equipmentcustomers are appraised by villageNGOs nominated by the company.

• A flexible approach in appraisingcustomers especially when they aregoing through lean temporaryperiods.

• Efficient repossession capabilitiescoupled with immediate assetredeployment.

ACCOUNTING INTERPRETATIONRISKIn the financing business, profitstatement can be influenced by theinterpretation of accountingapplications, leading to a relativelylow credibility.

Risk mitigation

SREI has inspired faith in its numbersthrough the following conservativeprovisioning and revenue recognitionpolicies:

• It does not recognise income onloans with uncertain recovery or withinterest on principal that has beendue for more than 360 days unless itanticipates the collection of interestin the near future.

• Its accounting interpretation ismore stringent than the RBIrequirement where a mandatoryprovision must be made on interestor loans if they have fallen due formore than 90 days.

• SREI makes provisions when thecollection of all contractually due

RISK MANAGEMENT: A STATE OF MIND

At SREI, we manage risks through the following:

• A through knowledge of our business and that of our

customers.

• A knowledge of when to follow the line and when to think

outside the box.

• A forward looking approach to identify where risk might lurk.

• An honesty of purpose so that red flags are raised

immediately as risk is detected and quantified.

• An ability to translate risk into income.

• A willingness to stay flexible in the understanding and

management of risk.

67

amounts becomes uncertain.

COLLECTION RISKIn the business of renewable energyequipment financing, villagerswithout adequate collateral need tobe financed, which is a risk asrepayments usually depend on themonsoon and agricultural income.

Risk mitigation

The company’s loss due to defaultsin this sector has been negligible forthe following reasons:

• Customer appraisals are made bythe local NGOs, comprising localresidents who possess in-depthknowledge of their neighbours.

• The company has simplified thecost of the service: since a solarlighting system provides electricityfor 20 years, at Rs. 30 per daypayable for 18 months, the electricitycost works out to a mere Rs. 2.25per day, an arithmetical explanationserving as a powerful inducement forrepayment.

MARKET RISKAn asset-liability mismatch could leadto a squeeze on resources.

Risk mitigation

The company has de-risked itselffrom a potential asset-liabilitymismatch through the followinginitiatives:

• Borrowing with a long-termperspective and a progressivereduction in exposure towards fixeddeposits.

• A structuring of the cash flow in amanner to address any abruptwithdrawal of funds by depositholders.

• A flexibility to raise long term loansand short term loans at relatively low

interest rates through issues ofcommercial paper, FCNR(B) bonds,assets and receivables securitisationand consortium lending.

INTEREST COST RISKAny rise in the interest rate without acorresponding increase in the lendingrate could endanger the business.

Risk mitigation

The company has reduced the impactof high interest rates through thefollowing initiatives: lower costfunding through consortium banks,asset securitisation, term loans,FCNR(B) loans, Commercial Papersetc.

OPERATING RISKNearly 90 per cent of the company’sincome is sourced from the financingof infrastructure equipment, a risk inthe event of a downturn.

Risk mitigation

Infrastructure is a multi-sectordiversified field and it is highlyunlikely that all sectors would face adownturn at the same time. In thebusiness of infrastructure assetfinancing, the risk is on the asset.The asset has multiple usages, notonly domestically but internationallyas well. Thus, the asset risk can bemitigated by exploring internationalmarkets too.

HUMAN RESOURCE RISKA people attrition could lead to adrain in intellectual capital.

Risk mitigation

The company counters attritionthrough the following strategies :

• Compensation linked toperformance

• Provision of employee stockoptions

• Continuous training anddevelopment

• Recruitment of local and stabletalent with sound intellect

• Open door working policy

• Transparent performance appraisals

REGULATORY RISKNBFIs are strictly regulated in India.Regulations pertaining to NBFIs canchange frequently, thereby adverselyaffecting the business of thecompany.

Risk mitigation

The company follows prudentpolicies and has more than compliedwith RBI regulations. The regulatoryrisk applies to all players in theindustry and will not represent anadvantage to any specific player.

ENVIRONMENTAL RISKIn India, any failure of infrastructureprojects to comply with variousenvironmental norms could lead tocensure that could affect projectviability and repayment.

Risk mitigation

The company has de-risked itselfthrough the following initiatives:

• A proper verification of all theenvironment norms that the projectcomplies with.

• All financed assets must be insuredagainst a range of damagepossibilities, a mandatory practice,insisted upon by all SREI’s fundingagencies.

• The company follows stringentenvironmental guidelines of IFC, DEGand FMO, who have funded thecompany with debt and equity overthe years.

No SREI-funded project has ever

68

been stuck in regulatory,environmental or political issues.

CURRENCY RISKSince 17.1 per cent of the company’sdebt was mobilised from foreignexchange borrowings - the US dollar,Euro and Deutsche mark - as on 31March 2005, any weakening of theIndian rupee represents a risk of arelatively large outgo in repaymentand interest obligations.

Risk mitigation

The company manages this riskthrough hedging a probable forexloss by taking floating rate loans,covering a major portion of its forexposition, a prudent policy since lowerinflation translates into a decliningrate of depreciation in the value ofthe Indian currency.

REPOSSESSION RISKConstruction equipment is not easyto redeploy in the event of default, arisk.

Risk mitigation

The company stays with customersin times of need (provided the samehas a clean record, and the delay has

arisen due to the unforeseencircumstances), withoutcompromising on the credit andasset quality. In such cases, insteadof repossessing the equipment, thecompany advises customers onprobable and profitable deploymentopportunities. In the event of adefault, the ownership and the cashflow generated from the use of theasset is assigned as per a contract inthe company’s favour.

COMPETITION RISKThe company is in a business whereit must compete with larger Indianand international commercial banks,who enjoy an access to a larger poolof funds sourced at lower costs,enabling them to undercut andoutfund the company.

Risk mitigation

SREI differs from the commercialbanks on the following counts:

• The company provides clients withvalue-added solutions as opposed tocompetitive interest rates.

• Thanks to its core focus, thecompany enjoys a strong negotiationcapability.

• The company is a one-stopdestination, providing a gamut ofservices (from advisory services tofinance to investments to insuranceetc.), enabling its survival.

• The company can enter into bulkdeals and buy discounted equipmenton its books.

As a result, SREI’s average rate ofinterest declined from 8.26 per centin 2003-04 to 6.23 per cent in 2004-05.

LIQUIDITY RISKSREI may not have liquid assets tomeet a sudden redemption by fixeddeposit holders or the repayment ofdebt.

Risk mitigation

The proportion of fixed assets in thetotal borrowings of the company isminiscule. Moreover, the companykeeps adequate liquid assets so thatthe business is not affected due to alack of funds. In addition, therepayment schedule is specificallytracked for every loan, to ensure thatthe funds are adequately available atthe time of repayment.

THE SECRET BEHIND A LOW PROPORTION OF NPAs IN SREI’S EQUIPMENT FINANCE DIVISION

Even as the average non-performing level in India’s NBFI industry is around 2-3 per cent, at SREI

the corresponding figure was a mere 1.63 per cent in 2004-05.

This unusually low NPA was a result of the following initiatives:

• Robust appraisal system de-risking the company from probable default.

• Flexibility in structuring the deal leading to enduring customer relationships withoutcompromising asset quality.

• Strong collection and repossession capabilities.

• Prudent selection of assets ensuring a high resale value.

• Thorough insight into the re-deployability of repossessed assets coupled with higher resale value.

69

• Excavators

• Compactors

• Dozers

• Cranes

• Heavy dumpers

• Compressors

• Surface miners

• Loaders

• Motor graders

• Backhoe loaders

• Tool carriers

• Tippers

• Trucks

• Road equipment

• Mechanical and sensorpavers

SREI FINANCES…

70

Human resources

At SREI, a continuous investment in its intellectual capital- over 500 individuals spread across 34 branches -represents the core of its strategy to understandcustomer needs, recognise product attributes, link thetwo and deliver customised solutions to enhanceorganisational value

Support function

71

RECRUITMENT POLICYThe company’s recruitment policycomprised the following initiatives:

• Recruitment of qualified andexperienced personnel who fitspecific job descriptions.

• Rigorous screening of eachapplication (including interviews)based on competency needed fromboth functional and soft skill point ofview.

• Recruitment of competentprofessionals to cater to specialisedfunctions like credit appraisal, riskmanagement and treasury ;simultaneously developing potentialresources from ‘within’ to cater tosuch specialised functions.

JOB QUALITYIn a knowledge-driven competitivemarket, the company has encouragedcreating a learning environmentwhere each role possesseschallenging and stretched goals.Empowerment / delegation hascreated accelerated decision-makingprocesses. All these have translatedinto a passion amongst theemployees. Besides cross-functionalexposure, vertical and horizontalgrowth have been key contributors tothe overall growth of employees.

TRAINING AND DEVELOPMENT In an industry cluttered withcommoditised products and services,SREI’s competitive differentiation isbeing derived through an ongoinginvestment in people and continuous

competence building. Therefore,training strategy was formulatedbased on business need as well astraining need of the individual / team.Accordingly, the company conductedcustomised training programmesacross various management levelsduring the year under review.Employees were also trained in softissues like team building, leadershipand managerial development byinternationally reputed trainers.Besides customised workshops,individuals were also nominated toattend various best-in-class seminars/ workshops organised by leadingprofessional forums to update theirknowledge. Such investment inpeople development also helped theorganisation to consolidate ourleadership position in the financeindustry.

PERFORMANCE APPRAISALFor employees to deliver competentlyand consistently, it became importantto appraise their skills with theobjective to identify gaps and migratethe skills to higher levels. In view ofthis, the company appraised theperformance of its employees aroundthe concept of key result areas.These KRAs were broken down intodeadline-specific deliverables thatwere communicated to eachemployee in advance.

To accelerate the learning process,reviews of performance wereconducted biannually focusing on thecontribution of the individual /division vis-à-vis business forecast for

the two halves of the financial year.Thereafter both appraiser andappraisee conducted a one-to-onemeeting to arrive at a developmentalconsensus, taking employee growthone step ahead.

COMPENSATIONThe company’s remuneration policywas structured at par with industrystandards. It encouraged atransparent performance-linkedbonus, which incentivised superiorperformance. Besides annualincrease and performance-linkedbonus, steps were taken to bridgethe compensation gap in deservingcases based on market trend ofcompensation. In addition, ESOPswere offered to employees acrossthe board to reward their contributionto the organisation and to instill afeeling of ownership in the company.

CAREER PATHTo drive aggressive growth in linewith growing industry opportunities,the company identified a largernumber of potential business leadersto prepare them for challenging rolesand assignments. Following prudentdelegation, the individual was movedup the career ladder as soon ashis/her capability to manage moreresponsibility became evident.

As a merit-respecting organisation,the promotion policy was basedsolely around performance andpotential of the individual and his/herability to work in a team.

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Performance

FINANCIAL INCOME ANDEXPENDITUREThe financial income of the companyincreased from Rs. 1104.2 million in2003-04 to Rs. 1256.9 million in 2004-05, representing income from coreoperations including leasing and hirepurchase.

Interest outflow declined from Rs. 629.6 million in 2003-04 to Rs. 558.3 million in 2004-05 as a resultof efficient fund management and theeffective mobilisation of low costfunds from within India and othercountries. RBI regulations denied

NBFIs an access to ECB funds for amajor part of the financial year underreview, affecting the companyadversely as it represented a financialinstrument of a longer tenure thanother low-cost instruments.

The company availed of low costfunds through a judicious mix ofcommercial paper, MIBOR bonds,bank borrowings and short-termloans. As a result, the total debt of the company increased 24.22 per centin 2004-05 even as its cost declinedby 24.6 per cent.

The financial statement above was drafted in line with the internationallyaccepted norms and standards like Standard and Poor’s and Moody’s to providethe readers with a globally relevant assessment of the company’s financialperformance in 2004-05.

FINANCIAL OVERVIEW (Rs. million)

2000-01 2001-02 2002-03 2003-04 2004-05

Financial income 873.0 1086.7 1171.5 1104.2 1256.9

Financial expenses 633.7 769.9 770.8 629.6 558.3

Net financial income 239.3 316.8 400.7 474.6 698.6

Trading/fee based income 10.8 13.4 0.8 49.1 38.7

Other operating income 30.2 17.5 16.8 3.7 3.7

Operating income 280.3 347.7 418.3 527.4 741.0

Personnel expenses 40.8 41.9 53.7 64.3 99.4

Other operating expenses 70.7 83.2 96.5 113.3 163.8

Operating funds flow 168.8 222.6 268.1 349.8 477.8

Amortisation/depreciation 8.6 11.6 10.9 11.2 11.8

Pre provision income 160.2 211.0 257.2 338.6 466.0

Bad debt / Provisions 22.6 36.9 36.5 46.0 62.5

Other items -6.7 -6.7 -6.7 -5.6 -5.5

Pre tax income 130.9 167.3 214.0 287.0 398.0

Tax 12.2 11.0 16.8 17.7 19.3

Pre-deferred tax net profit 118.7 156.3 197.2 269.3 378.7

Deferred tax - 28.3 51.1 64.9 95.7

Net profit 118.7 128.0 146.1 204.4 283.0

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74

INTEREST SPREADThe company’s interest spreadincreased for the fourth successiveyear, rising to 6.81 per cent. This wasa result of rationalised borrowingcost due to innovative borrowinginstruments and active treasurymanagement, while on the assetside, the company added value to itsproducts and provided customisedsolutions to customers withoutreducing the interest rate.

The operating income from financingactivities of the company increasedfrom Rs. 527.4 million in 2003-04 toRs. 741.0 million in 2004-05, by 40.5per cent. This increase in incomewas also coupled with an improvedinterest spread from 5.37 per cent in2003-04 to 6.81 per cent in 2004-05.This increased spread was achievedon a higher base than the previousyear.

EXPENSESThe total operating expensesincreased from Rs. 177.6 million in2003-04 to Rs. 263.2 million in 2004-05, an increase of 48.2 percent. This increase was mainly onaccount of increased personnelexpenses by 54.6 per cent, from Rs.64.3 million in 2003-04 to Rs. 99.4million in 2004-05. This increase wasas a result of the increasedrecruitment of personnel, to tapgrowing business opportunities.Besides, other operating expensesincreased by 44.6 per cent from Rs.113.3 million in 2003-04 to Rs. 163.8million in 2004-05, mainly on accountof an increased expenditure inadvertisement, rent & taxes,brokerage charges and legal andprofessional charges.

OWN FUNDSEquity capital

The company’s equity share capitalcomprised 87,888,906 equity sharesof a face value of Rs. 10 each, thepromoters holding around 19 percent of the total subscribed and paid-up capital.

In April 2005, the company becamethe first NBFI from India to be listedon the London Stock Exchange as it

issued 8,648,500 GDRs at USD 4.05each, one GDR being equivalent tofour underlying equity shares. Theissue resulted in an increase in equitycapital by Rs. 345.9 million.

The company maintained a healthycapital adequacy ratio of 16.15 percent against 12 per cent stipulated bythe RBI, signifying financial prudence.

Provision for assets

SREI made a provision for assetsbased on the guidelines issued bythe RBI and foreign financialinstitutions (Rs. 22.2 million in 2004-05 compared to Rs. 10.3 millionin the previous year). Its total assetbase increased 22.01 per cent from Rs. 11439.4 million in 2003-04 to Rs. 13957.6 million in 2004-05,though pre-tax income increased38.68 per cent from Rs. 287 million in2003-04 to Rs. 398 million in 2004-05.The company’s profit after current taxincreased by 40.62 per cent from Rs. 269.3 million in 2003-04 to Rs. 378.7 million in 2004-05. Theprovision for deferred tax, as per AS-22 issued by ICAI, increased fromRs. 64.9 million in 2003-04 to Rs. 95.7million in 2004-05.

Year ended as on 31-Mar-03 31-Mar-04 31-Mar-05

As per Balance Sheet

Yield on average funds (a) 15.12 13.63 13.04

Cost of average funds (b) 10.95 8.26 6.23

Gross interest spread (a-b) 4.17 5.37 6.81

(%)

The operatingincome fromfinancingactivities of SREIincreased by40.5 per cent,coupled with animprovedinterest spreadfrom 5.37 percent in 2003-04to 6.81 per centin 2004-05

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Reserves

Reserves represent the cumulativeretained earnings used forprospective deployment in thebusiness. Reserves increased fromRs. 912.3 million in 2003-04 to Rs.1104.8 million in 2004-05. Freereserves stood at Rs. 1048.3 milliontowards the close of 2004-05,accounting for 95 per cent of thetotal reserves. The companyincreased its provision for specialreserves created as per RBIguidelines from Rs. 207.7 million in2003-04 to Rs. 264.7 million in 2004-05. Besides, the company’sBond/NCD redemption reservedeclined from Rs. 50.6 million in2003-04 to Rs. 40 million in 2004-05as a result of the redemption of non-convertible debentures and multi-option step-up bonds during the year.

Term loans

Total secured loans increased 32.88per cent from Rs. 6014.4 million in2003-04 to Rs. 7991.8 million in 2004-05 as the Company borrowed fromIndian and foreign financialinstitutions and banks. Workingcapital borrowed from banks was56.77 per cent of the total securedloans in 2004-05 compared to 34.75per cent of the total secured loans in2003-04.

During the year under review, threebanks - State Bank of Travancore,Union Bank of India and State Bankof Saurashtra – joined the consortiumlending to the company, enhancingthe total strength of consortiumbankers to 27, the largest suchconsortium among NBFIs in India.

Public deposits

The company’s public depositincreased from Rs. 130.7 million in2003-04 to Rs. 144.7 million in 2004-05. As a matter of policy, thecompany did not mobilise publicdeposits for its business expansion.

Commercial papers and MIBORbonds

The company doubled its debtexposure in Commercial Papers andMIBOR Bonds due to their low costand comparatively higher tenure ofavailability. The total CommercialPaper issued by the companydeclined from Rs. 4300 million in2003-04 to Rs. 3150 million in 2004-05 while the average debt cost onCommercial Papers and MIBORBonds amounted to a modest 5.5 percent.

Securitisation

The company mobilised funds worthRs. 6518 million in 2004-05 throughsecuritisation transactions.

FCNR(B)

The company reduced its reliance onthe foreign currency non-repatriable

0

2

4

6

8

10

4.90

5.11

5.56

02-03 03-04 04-05

Debt-equity ratio

0

1

2

3

1.29 1.47 1.73

02-03 03-04 04-05

Interest coverage ratio

0

3

6

9

12

15

10.95

8.26

6.23

02-03 03-04 04-05

Average debt cost(per cent)

0

5

10

15

20

25

11.63 14.97 18.55

02-03 03-04 04-05

Return on average net worth(per cent)

0

200

400

600

800

1000

1200

798.2 912.3 1104.8

02-03 03-04 04-05

Retained earnings (Rs. million)

76

bonds from Rs. 3210 million in 2003-04 to Rs. 1180 million in 2004-05 asthe cost of FCNR(B) loans declinedsubstantially from 6.66 per cent in2003-04 to 4.31 per cent in 2004-05.

APPLICATION OF FUNDSStock for lease

The company’s total stock of leasedassets increased by 27 per cent fromRs. 3919.7 million as on 31.03.2004to Rs. 4982.7 million as on31.03.2005.

Stocks for hire

The company’s total stock for hiredassets increased 23 per cent fromRs. 11431.2 million as on 31.03.2004to Rs. 14078.4 million as on31.03.2005.

Project finance

The company’s exposure to projectfinance increased 3 per cent from Rs.1237.1 million on 31.03.2004 to Rs.1278.9 million as on 31.03.2005.

Debtors

The company’s total debtors relatingto leasing transactions as on

31.03.2005 was a mere Rs. 41.4million, accounting for 3.61 per centof the total lease income during thefinancial year under review and aresult of efficient collection andappraisal.

Operational overview

The company’s total disbursementsgrew 50 per cent from Rs. 10733million in 2003-04 to Rs. 16099million in 2004-05. The approvals alsoincreased during the year underreview, indicating sustainable growththough quality projects.

Treasury operations

The company’s efficient treasuryoperations ensured the mobilisationof low cost funds from varioussources to meet the company’s highfunding requirements. SREI, as asuperior fund manager, not onlymanaged its debt cost through astronger negotiation process, butalso hedged the loss on its foreigncurrency fluctuations. The treasurydepartment also played an active rolein investing the surplus cash availablewith the company. In 2004-05, as

ECB loans were discontinued forNBFIs, the treasury departmentprotected its interests and arrangedfor better debt options.

The following were the highlights ofthe treasury department at SREI in2004-05:

• Cost of borrowings fromdomestic institutions and banksdeclined from 7.5 per cent in2003-04 to 6.27 per cent.

• Cost of short-term loans declinedfrom 7.88 per cent in 2003-04 to7.35 per cent, while short-termloans availed during the periodincreased from Rs. 920 million toRs. 3020 million

• The company increased its issueof Commercial Paper and MIBORbonds by 179 per cent.

Credit rating

The company continued to enjoy ahigh credit rating from reputedagencies like FITCH and CARE during the year under review,indicating its philosophy, trust andreputation.

In the CARE parameters, the CARE AA rating indicates that the instrument was judged to be of high quality by all standards andclassified as high investment grade. The CARE A+ indicates upper medium grade instruments with many favourable investmentattributes. The PR1 rating indicated that the instrument possessed a superior capacity for repayment of short term promissoryobligations.

In the FITCH parameters, AA- indicates high credit quality with strong capacity for timely payment of financial commitments. F1+indicates the highest credit quality with strongest capacity for timely payments.

Non performing assets

The company’s NPA stood at 1.28 per cent of its total assets in 2004-05.

FITCH CARE

NCD IndAA- CARE AA-

Fixed deposits tAA-(ind) CARE AA-(FD)

Short term debentures/ bonds F1+(ind) PR1+

Subordinate bonds - CARE A+

2001-02 2002-03 2003-04 2004-05

Number of NPA cases 112 167 146 149

Total assets (in Rs. million) 11713.7 11756.4 11439.4 13957.6

Total NPA as per RBI (in Rs. million) 109.4 128.8 124.1 178.2

Total NPA as per FLI (in Rs. million) 201.3 234.2 289.0 227.8

Total NPA as per RBI as % of total assets 0.93 1.10 1.08 1.28

Provisions and write-offs (in Rs. million) 147.2 164.4 174.7 196.9

Provision to total assets (in %) 1.26 1.40 1.53 1.41

Provision to NPA (in %) 73.12 70.20 60.45 86.44

Net NPA to total asset (in %) 0.46 0.59 1.00 0.22

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Provisioning as per RBI Provisioning as per IFC, Washington

Amount outstanding for Provisioning (%) Amount outstanding for Provisioning*(%)

Upto 12 months Nil Upto 3 months nil

12-18 months 10 3-6 months 20

18-36 months 40 6-12 months 50

36-48 months 70 more than 12 months 100

more than 48 months 100

ASSET CLASSIFICATION

Particulars Net B.V. % to Net B.V. % to Net B.V. % to Net B.V. % to as on total as on total as on total as on total

31.03.2002 31.03.2003 31.03.2004 31.03.2005

Standard 11604.3 99.07 11627.7 98.9 11315.0 98.9 13779.3 98.72

Sub-standard 22.0 0.18 42.2 0.36 75.1 0.7 88.4 0.63

Doubtful 25.9 0.22 23.1 0.20 12.8 0.1 83.9 0.6

Loss 61.5 0.53 63.4 0.54 36.5 0.3 6.0 0.05

Total 11713.7 100.0 11756.4 100.0 11439.4 100.0 13957.6 100.0

PROFITABILITY

RATIOS

31-Mar-03 31-Mar-04 31-Mar-05

Total income / Average total assets 10.64 10.48 10.23

Pre-provision income / Average total assets 2.30 3.07 3.67

Net interest margin / Average total assets 3.63 4.51 5.68

Net interest margin (NII / Average earning assets) 5.11 5.92 7.19

Operating profit margin 20.81 28.08 35.02

Profit before tax margin 18.00 24.81 30.63

Net profit margin 12.29 17.67 21.78

Dividend payout 41.14 44.18 31.98

Return on average net worth 11.63 14.97 18.55

Return on average equity 27.33 38.24 52.95

Return on average assets 1.31 1.85 2.23

EFFICIENCY 31-Mar-03 31-Mar-04 31-Mar-05

Operating expenses / Average total assets 1.34 1.61 2.07

Total expenses (incl. Provisions) / Average total assets 1.83 2.18 2.70

Personnel expenses / Average total assets 0.48 0.58 0.78

Gross NPA / Total assets 1.10 1.08 1.28

Provisions for NPAs / Average total assets 0.15 0.09 0.17

VALUATION

31-Mar-03 31-Mar-04 31-Mar-05

EPS (Rs.) 2.74 3.84 5.31

Book value (Rs.) 24.47 26.75 30.51

* Provisioning against total dues including non-matured installments.

(in Rs. million)

(%)

(%)

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Directors’ Profile

Mr. Salil K. Gupta, B. Com., FCA,Chief Mentor of the Company, having47 years of professional experience,is the former Chairman of WestBengal Industrial DevelopmentCorporation Ltd. (a leading statefinancial institution), and is alsoformer President of the Institute ofChartered Accountants of India.

Mr. M. S. Verma, M. A., CAIIB,Chairman of the Company, is theformer Chairman of the State Bank ofIndia, the Telecom RegulatoryAuthority of India and of IDBI BankLimited. He is one of the mostrespected personalities in the worldof finance and banking, havingheaded India’s largest commercialbank.

Mr. Hemant Kanoria, Vice Chairman& Managing Director of the Company,a commerce graduate with over 25years of experience in industry, tradeand financial services. He is theformer President of the CalcuttaChamber of Commerce, pastChairman of the NBFI Task Force, theFederation of Indian Chamber ofCommerce and Industry and amember of the Steering Committeeof Tata Energy Research Institute’sRepository of EnvironmentalActivities and Technology, formermember of Board of Governors ofIndian Institute of Management,Calcutta and former Chairman,Infrastructure Committee,Confederation of Indian Industry(Eastern Region).

Mr. V. H. Pandya, is an Economics &Law graduate and an associate of theIndian Institute of Bankers. He hasover 40 years of experience in theReserve Bank of India, the IndustrialDevelopment Bank of India and theSecurities and Exchange Board ofIndia (SEBI) at various functionallevels.

Mr. S. Rajagopal, M.A. CAIIB, is theformer Chairman & ManagingDirector of Bank of India and aformer Chairman of Indian Bankhaving more than 30 yearsexperience in the banking industry.

Mr. Sunil Kanoria, is a CharteredAccountant with over 16 years ofexperience in the financial serviceindustry. He is a governing memberof Construction IndustryDevelopment Council (CIDC) and hasserved as past President inMerchants’ Chamber of Commerce,Federation of Indian Hire PurchaseAssociation (FIHPA) and HirePurchase & Lease Association(HPLA).

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Mr. B. Swaminathan, a NomineeDirector of the Indian RenewableEnergy Development Agency Limited,is the former Director (Finance) ofCoal India Limited, a former JointSecretary in the Ministry of Financeof the Government of India.

Mr. R. Sankaran, M.A., DBM, is theformer Chief Executive of theMerchant Banking Division ofStandard Chartered Bank. He hasover 30 years of experience in stockbroking and investment banking andis a founding Chairman of Ind GlobalFinancial Trust and a former partnerat Andersen Global CorporateFinance.

Mr. P. K. Pandey, is a CharteredAccountant with more than 30 yearsof experience in the industry andservice sector having held severalsenior executive positions. He hasalso managed several infrastructureprojects during his tenure in theindustry and headed a completecaptive mining operation function asautonomous business unit.

Mr. K. K. Mohanty, M.Tech, MBA,has more than 16 years experience,including 11 years in the Orissa StateFinancial Corporation in assetfinancing, project funding, profit andcredit appraisal, structuringsyndication and receivablesmanagement.

Mr. Suneet K. Maheshwari, MBA, isa senior executive with over 23 yearsof experience in infrastructureprojects, financial advisory services,investment banking and consumermarketing in India including over 16years of experience with ICICILimited in Investment Banking andAdvisory businesses.

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Your Directors are pleased to present the Twentieth Annual Report together with the Audited Accounts of your Companyfor the financial year ended 31st March, 2005. The summarised financial performance of your Company is as under:

FINANCIAL RESULTS (Rupees in Lacs)

Year ended Year ended31st March, 2005 31st March, 2004

Total Income 12993 11570

Total Expenditure 8270 8128

Profit before Depreciation 4723 3442

Depreciation 118 112

Profit before provisions & tax 4605 3330

Bad Debts / Provisions 625 460

Profit Before Tax 3980 2870

Provision for Current Taxation 193 177

Profit After Current Tax 3787 2693

Deferred Tax 957 649

Profit After Deferred Tax 2830 2044

Profit Available for Appropriation 3506 2261

Paid up Equity Share Capital 5345 5345

Reserves (excluding revaluation reserves) 11048 9123

Net worth 16258 14257

Mezzanine Capital (Tier II) 8101 7970

Total Assets under management 224051 183477

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OPERATIONAL REVIEWInfrastructure development in Indiahas been picking up over the pastcouple of years on the back of thegovernment’s concentrated efforts topromote reforms in the sector. Theincumbent government has steppedup investments in key sectors such asroads, ports, railways and power overthe past few years.

Your Company continued to improveits performance due to its soundbusiness model and thrust oninfrastructure sector throughequipment and project finance. Itsfinancial performance over the yearshas continued to display high growthin earnings and disbursements even inan increasingly competitiveenvironment. Your Companymaintained its leadership position inthe growing infrastructure equipmentfinance business.

Your Company, in order to reflect itscore business areas of infrastructurefinancing changed its name during theyear to ‘SREI Infrastructure FinanceLimited’.

Some of the highlights of yourCompany’s performance during theyear under review are:

• Fresh disbursements were Rs. 160,997 lacs as compared to Rs. 107,330 lacs last year, anincrease of 50.00 per cent.

• The total asset under managementof the Company increased to Rs. 224,051 lacs as against Rs. 183,477 lacs last year, a growthof about 22.11 per cent.

• The gross profit (beforedepreciation, bad debts, provisionand tax) grew to Rs. 4723 lacs fromRs. 3442 lacs last year, a jump of37.22 per cent.

• Profit before Taxation increased toRs. 3980 lacs as against Rs. 2870lacs in the last year, an increase ofaround 38.68 per cent.

• The net profit after current taxationincreased to Rs. 3787 lacs asagainst Rs. 2693 lacs in the lastyear, an increase of around 40.62per cent.

Your Company has been able tosuccessfully raise resources this yearthrough innovative instruments,resulting in reduction of the cost offunds, thereby increasing the profitsof your Company.

The Capital adequacy of yourCompany is 16.15%, which is wellabove the minimum level of 12%prescribed by the Reserve Bank ofIndia.

Your Company has complied with allthe norms prescribed by the ReserveBank of India for income recognition,provision for bad and doubtful debts,capital adequacy, concentration ofcredit/investment, credit rating andother requirements and also all themandatory accounting standardsissued by The Institute of CharteredAccountants of India. It follows theconservative accounting policy byproviding for assets in terms of theguidelines laid down by the ForeignFinancial Institutions, which are morestringent than the guidelines of theReserve Bank of India.

CAPITALIn April, 2005, your Companysuccessfully raised Rs. 153.25 croresby way of overseas offering of8,648,500 Global Depository Receipts(GDRs) through book building processat a price of USD 4.05 per GDR, eachGDR representing four underlyingEquity shares of your Company. TheGDRs are listed and traded on the

London Stock Exchange. The offerattracted strong demand and positiveresponse from investors across Asia,U.K., U.S. and Europe and thisaugmentation of capital will help yourCompany in reinforcing its growthstrategy by strengthening the capitalbase and thereby increasing itscapacity to lend.

Your Company is the first Indiancompany in the infrastructurefinancing business to be listed on theLondon Stock Exchange and joins theelite league of Indian corporate whohave already taken the GDR route totap overseas resources.

DIVIDENDYour Directors are pleased to maintainthe dividend at the last year’s level.Your Board has accordinglyrecommended a Dividend of 15% (Rs.1.50 per Equity Share) for the Financialyear 2004-05 to the Equityshareholders of the Company. TheDividend for the F.Y. 2004-05 shall besubject to tax on dividend to be paidby the Company but will be tax-free inthe hands of the shareholders.

CONSOLIDATED FINANCIALSTATEMENTSThe Consolidated FinancialStatements have been prepared byyour Company in accordance with therequirements of the accountingstandards issued by The Institute ofChartered Accountants of India. Theaudited Consolidated FinancialStatements together with AuditorsReport thereon forms part of theAnnual Report.

The group recorded a consolidatednet profit before taxation of Rs. 3954lacs for the financial year 2004-05 ascompared to Rs. 2887 lacs during thefinancial year 2003-04.

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MANAGEMENT DISCUSSIONAND ANALYSIS REPORT

ECONOMIC REVIEWThe global economy continued toexpand at a robust pace during 2004.Aided by strong growth in industrialcountries and rapid expansion inemerging economies such as Chinaand India, world output is projected tohave risen by 5.1% in 2004, thehighest since 1976.

Among the advanced economies,while economic activity in the USturned robust, growth moderated inJapan and the UK. In the US, GDPgrowth was placed at 4.4% in 2004,led by private investment andhousehold consumption.

Mounting fiscal deficit in the USexerted downward pressure on theUS dollar which depreciated by 9.4%against the Euro and 6.7% against theJapanese Yen. Despite theseconstraints and the upwardmovement of long-term yields, the USavoided accommodative monetarypolicy and indulged in successivehikes in the target Federal Funds Rateat a measured pace.

By contrast, growth moderated in theEuro area and the UK due to subduedinvestor sentiment and limitedhousehold spending, with externaldemand embodied in rising exportdemand from developing countriesproviding the main sustenance togrowth. The European Central Bank, infact, downgraded its projection ofeconomic growth during 2005 to 1.2-2.0% in February, 2005 from 1.8-2.8%in September, 2004.

In Japan, economic recovery lost

momentum by the final quarter of2004. Exports to developing countriesprovided the main stimulus to growth.The turnaround out of deflation was,however, fragile and real GDP growthwas placed at 2.6% for the full year2004.

Amongst the Emerging MarketEconomies (EMEs), the DevelopingAsia group is projected to have grownby 8.2% in 2004, over and above 8.1%in the preceding year. Despitemonetary tightening measures,Chinese economic growth continuedto expand at 9.5% in 2004, up from9.3% in the preceding year. LatinAmerica saw broad-based economicgrowth driven by exports anddomestic demand.

According to the World Bank, worldtrade volume recorded a growth of10.2% during 2004. The robustexpansion in demand for rawmaterials in a number of developingcountries led by China, the sustaineddemand expansion in the US andmodest economic recovery in othermajor industrialised countries led tothe expansion in trade volume. Verystrong world demand was reflected inemerging capacity constraints, risingprices in commodity markets andincreased inflation in somedeveloping regions, notably SouthAsia, Latin America and some parts ofdeveloping Europe.

However, a global slowdown isexpected in 2005 in the wake ofinternational developments like risingoil prices, a depreciating US dollar andconsequent disorderly exchange ratemovements, reversal of global capital

flows from emerging and developingeconomies in the case of arealignment of interest rates and theintended soft-landing of the Chineseeconomy. The International MonetaryFund (IMF) has projected world outputgrowth at 4.3% for 2005.

Performance of the Indian economy in2004-05 was impressive. According toCentral Statistical Organisation (CSO)estimates, Indian economy grew at6.9% in 2004-05 over a high base of8.5% growth registered in 2003-04.The strong expansion is reflected inthe leading macro indicators, such asproduction and import of capitalgoods, production of commercialvehicles, increased off-take in non-food credit and strong growth inconsumer durables.

The fear of the initial monsoon failurescaling down the overall GDP growthwere warded off by robustperformances from the industrial andservices sectors which grew at 7.8%and 8.9% respectively in 2004-05.Agriculture grew at only 1.1% due to adeficient monsoon. However, this didnot have any perceptible impact onindustrial activity indicating a gradualinsulation of industry from thevagaries of monsoons. It is worthmentioning that such high growth waspossible despite the tsunamidevastation, a cost-push inflation andre-emergence of a current accountdeficit in 2004-05.

External sector performance was alsorobust in 2004-05. Merchandiseexports grew at 25% and imports at35% and trade deficit widened to overUSD 22 billion. The ballooning of

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import bill was on account of a sharprise in crude prices coupled with ahike in non-oil imports stemming froma pick-up in industrial activity. Thecurrent account position was stillcomfortable due to a positive balanceon trade in services. The surge incapital account in 2004-05 was largelyorchestrated by Foreign InstitutionalInvestors (FIIs) and ExternalCommercial Borrowings (ECBs), short-term loans and other capital inflows.Foreign Direct Investment (FDI)constituted a small proportion in thecapital account surge.

India’s foreign exchange reservestouched a record high of USD 141.5billion on 31st March, 2005, up fromabout USD 106 billion last year.Increased international liquidity makesIndia more resilient to external shockswhich could result from higher globalinterest rates or sustained high oilprices. As a consequence of a rise indemand for non-food credit and hikein the cash-reserve ratio, interest ratesstarted moving up, with yields on 91-day treasury bills increasing from4.4% to 5.4% in April-December,2004.

The accumulation of large reservesalong with the weakening of the USdollar against major internationalcurrencies caused the rupee toappreciate against the US dollar byabout 2.1% during the first 50 weeksof 2004-05.

The hardening of interest rates hasalso been due to inflationarypressures which started building upfrom the beginning of the year. Thedownturn in inflation towards the end

of the year notwithstanding, averageinflation for 2004-05 was 6.5%, upfrom 5.4% during 2003-04. The rise ininflation has been cost-push, mainlydue to high world oil prices and risingprices of iron and steel. Bullishexpectations, driven by buoyantgrowth and rising corporate profits,are reflected in the recent boom instock prices. After declining quitesharply during April-May 2004 in therun-up to elections, the market hasrebounded to reach record levels ofmarket capitalization.

Overall, the macro-economicfundamentals have remained strong.And despite clear signals of hardeningof interest rates and rising oil importbills, the upbeat investment climate inindustrial and services sectors andgovernment’s policy focus on ruraldevelopment are adequate forachieving a 7% plus GDP growth in2005-06.

BUSINESS OUTLOOK AND FUTUREPLANSThe Non-Banking Financial Institutions(NBFIs) constitute a crucial segmentof the country’s service sector. Therole of NBFIs in asset creation andinfrastructure development is wellacknowledged today, especially insectors which are considered to begrowth engines of the economy,namely infrastructure, transportation,small & medium enterprises (SMEs),rural sectors, etc. For long, the NBFIshave been the primary conduit forcredit delivery to the dispersed, under-banked and under-serviced sectionsof the economy. They have thrived ontheir inherent strengths of deeper

reach, local knowledge, creditappraisal skills, well trained collectionmachinery, close monitoring ofborrowers and customised clientservice.

The NBFIs have evolved over theyears and unlike in the past, presentlythey are very well regulated andsupervised by the RBI. The late 90sshakeout among the Indian NBFIswitnessed the survival of few largeconservatively operating institutions.They weathered the crisis and havegrown and expanded their business.Some multinationals too have enteredand set up NBFIs focusing on theareas of equipment and customerfinance. Another recent developmentis the stiff competition that NBFIs arefacing from banks and other financialinstitutions in their traditional areas ofretail lending.

The RBI and the ParliamentaryCommittee on Finance haverecognised the contribution made byNBFIs in extending the benefits ofeconomic reforms to the furthestcorners of the country. In order toenable the NBFIs to gear up for futurechallenges, the RBI has taken anumber of steps. This is indeed awelcome trend. RBI is now more keenon creating a facilitating environmentfor NBFIs rather than just bindingthem under strict regulations.

To address their need for long termfunding, RBI has recently lifted themoratorium on NBFIs to accessexternal commercial borrowings(ECBs). Now, NBFIs are allowed toaccess foreign loans for infrastructureprojects.

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The last mid-term review of AnnualPolicy Statement for 2004-05 has dulyrecognised the experience gained byNBFIs in financing second handassets, and thus has allowed banks toextend finance to NBFIs againstsecond hand assets financed bythem. Banks may also extend financialassistance to the customers directlyfor purchase of second hand assets.This is a welcome development forthe NBFI sector.

Expansion in investment, especially ininfrastructure, holds the key tosustaining high growth over the longrun. The investment rate increased to26.3% of GDP in 2003-04 and isestimated to have increased to 26.5%in 2004-05. However, the current rateof infrastructure investment at 3.5%of GDP is way below what is requiredfor the lofty target of an 8.0% plusGDP growth in the coming years setby the Expert Group on theCommercialisation of InfrastructureProjects. Thus, in a bid to boostinfrastructure investments, the UnionGovernment has proposed financinginfrastructure investment in specificareas such as roads, ports, airports,and tourism through a special-purpose vehicle in terms of additionalborrowings with longer-termmaturities.

Despite strong signals of a globalslowing down, the Indian economy isall set for yet another year of stronggrowth. The government, in order tomaintain the momentum of growth,has taken positive steps to ensurethat the economic reforms becomemore broad-based and more inclusive.A number of steps to this end are

being taken with a special focus onextending the benefits of reforms torural India.

Launching the 4-year long ‘BharatNirman’ programme to develop ruralinfrastructure is a big step forward. Allsectors of rural infrastructure namelyroads, housing, irrigation, watersupply, electrification and telecom arebeing covered under this. Earlier thefocus was on ad-hoc rural schemes togenerate employment. But the nextlogical step of connectivity to marketsfor the rural produce often remainedunaddressed. The shift of focus onbuilding the infrastructure to enablesuch connectivity augurs well for theentire economy. An outlay of Rs. 80billion has been earmarked for theRural Infrastructure DevelopmentFund (RIDF) for 2005-06.

After a period of stocktaking, thegovernment has taken up the roaddevelopment programme withrenewed zeal. This year’s budget hasprovided Rs. 14 billion for four-laningof 4000 Km of national highwaysduring the year and allocating Rs. 4.5billion for highway development in theNorth Eastern region. The NHDP III tobe launched in 2005-06 is targeted todevelop select high-density highwaysnot forming part of the GoldenQuadrilateral (GQ) or the East-WestNorth-South (E-W & N-S) Corridors.The plan expenditure for the roads &highways sector has been hiked to Rs.190.85 billion for 2005-06 from Rs.58.98 billion in the current year. UnderBharat Nirman, development of ruralroads would be taken up in a big way.

To provide the necessary thrust to thepower sector, the government has

constituted an Expert Committee onEnergy Policy and is actively pursuingthe Accelerated Power Developmentand Reforms Programme. 11 privatesector power projects aggregating toan additional capacity of 4000 MWhave achieved financial closure.Special focus is given to ruralelectrification. Government aims tocover 1.25 lac villages in 5 years. Forthe current year, an outlay of Rs. 11billion has been made. This opens upmajor opportunities for renewableenergy technologies in supplyingpower to remote villages where gridelectricity cannot be reached.

Development of Indian ports is alsovery much on the government’s radar.In 2003-04, the port sector handled446.2 MT of cargo and recorded an8.3% growth over the previous year.Port traffic is expected to witness amoderate growth of 8-10% over themedium term. The Sagar Mala project(announced in 2003) envisagescapacity expansion and modernizationof all maritime transport includingports, shipping and waterways. If theproject is implemented, portdevelopment would receive a fillip.Under the project, all major ports willbe connected to the GQ through high-speed expressways and railconnectivity to ports will also bestrengthened. The programme callsfor investments to the tune of Rs.1000 billion over a period of 8-10years.

Government is equally committedtowards building of urban and ruralinfrastructure. The housing sector toohas a rural focus. Outlay for IndiraAwas Yojana for building 1.5 million

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houses during the year has been putat Rs. 27.5 billion. The National UrbanRenewal Mission is to beef up urbaninfrastructure services in 7 cities andsome major towns (with 1 million pluspopulation) with a Rs. 55 billion outlayfor 2005-06. This is expected toprovide a spurt to provision ofinfrastructure support services in thecities. All drinking water schemes areto be brought under the umbrella ofthe Rajiv Gandhi Drinking WaterMission. Also, an allocation of Rs.26.1 billion has been made forAccelerated Rural Water SupplyProgramme (ARWSP). The pre-budgetannouncement of allowing 100% FDIin construction has been a booster tothe housing industry and all otherconstruction activities.

The government has also increased itsbudget to build a ‘world class railwaysystem’ and for starting urban metrorail systems in all major cities. Thefocus is on modernizing the railwayinfrastructure as well as operations.Government has also authorisedincreased commercial utilization ofrailway land with private sectorparticipation, especially forpassenger-related services like settingup hotels and shopping malls.

To channelise investment for viableroad, port, airport and tourismprojects, government has mooted aSpecial Purpose Vehicle (SPV). TheFinance Ministry would decide on theborrowing limit of the SPV for eachyear and the limit for 2005-06 hasbeen set at Rs. 100 billion. In additionto that, a viability gap fund of Rs. 15billion has been created which wouldprovide equity support.

With an expected 7% plus GDPgrowth and government accordingtop priority to creation of physicalinfrastructure, the NBFI sector hasanother year of hectic activity aheadof it. Despite hardening of interestrates, business sentiment is buoyantand infrastructure sector projects areexpected to drive economic growth.And your Company’s in-depthknowledge of the infrastructure sectorbusiness, strong financial position,comfortable capital adequacy,adoption of prudent businessstrategies and fostering of a culture ofinnovation have enabled it toconsistently post satisfactoryperformance and stay ahead ofcompetition. Your directors areconfident of continuing the growthtrend in future also.

INFRASTRUCTURE EQUIPMENTFINANCEDuring the year, your Companyconsolidated on the last year’smilestone of Rs. 1000 croresdisbursement mark and achieved yetanother disbursement milestone ofcrossing Rs. 1500 crores. In theprocess, your Company furtherconsolidated its leadership position inthe segment by increasing its marketshare to almost 25%.

‘Leadership through innovation’ wasthe motto on which your Companyoperated during the year. Two majorinnovations were initiated andimplemented on this front. The firstwas ‘Paison ki Nilami’ (PKN) whereinconstruction equipment werefinanced to pre-selected customers byway of interest rate bidding. Thisinnovation proved to a major

attraction in the market and hugevolume of construction equipmentwere financed in two such events. Thesecond initiative undertaken withequal success was ‘Stock & Lease’wherein equipment were reservedwith some of the reputedmanufacturers like Volvo, IngersollRand and others.

Your Company initiated a major drivetowards further strengthening itsalready strong relationship with all themajor construction equipmentmanufacturers. A number of roadshows in specific areas wereconducted in partnership withequipment manufacturers. New tie-ups with manufacturers were alsoestablished.

The increased business volumes havealso created a need for furtherstrengthening of risk control system.Accordingly, to this effect, anindependent risk control group hasbeen created consisting of senior riskprofessionals to analyse the variousrisks faced by your Company in its dayto day business and suggest controlmechanism to mitigate such risks.

With government’s continued focuson infrastructure development, yourdirectors expect the growthmomentum in equipment financingbusiness to continue inspite ofincreasing competition.

INFRASTRUCTURE PROJECTFINANCEThe importance of having a qualityinfrastructure as one the primerequisites for sustainable growth hasbeen well accepted by both theCentral and the State Governments.

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The importance and need to involveprivate players in building andmaintenance of quality infrastructureis well accepted today, particularly intransportation (railways, roads, ports,civil aviation); electricity generation,transmission and distribution;communications (telecommunicationand media); water supply andsanitation, and solid wastemanagement. At the same time, theneed for adequate sector specificregulatory frameworks cannot beundermined. The Government hasbeen actively engaged in designing anappropriate enabling policyframework which would provide theprivate sector adequate confidenceand incentives to invest on a massivescale, while simultaneouslypreserving adequate checks andbalances through transparency,competition and regulation.

The environment has provided yourCompany substantial opportunities toinvest and grow in the InfrastructureSector. During the year, yourCompany has remained focused onthe Road and Power sectors as thekey target areas for investment.

Road Sector

The growth in the Road Sector duringthe year under review has beenmixed. The Golden Quadrilateral andthe NSEW Projects have achievedsubstantial progress and has createda substantial impact on the country’seconomy. It is expected that theGolden Quadrilateral Project shall becompleted by December, 2005 andthe NSEW by December, 2007.

While there were virtually no newprojects announced by NHAI during

the entire year under review, there hasbeen some movement in public-private partnership (PPP) initiatives inthe road sector which are expected toprovide substantial opportunities foryour Company during the current year.

The NHDP Phase-III proposes to takeup rehabilitation and up-gradation ofabout 10,000 km of existing nationalhighways to four-laned dualcarriageway on a build-operate-transfer (BOT) basis. The programmegenerally comprises stretches ofnational highways carrying highvolume of traffic, connecting Statecapitals with the NHDP Phase I & IInetworks, port connectivity roads, andproviding connectivity to places ofeconomic, commercial and touristimportance. The Accelerated North-East Road Development Project hasalso been proposed for thedevelopment of the roads in theregion.

During the year, a consortium of yourCompany with SREI as the LeadFinancial Partner has been awardedthe prestigious Bharatpur-Mahuahighway project on National Highway(NH) 11. The project is a part of theGolden Quadrilateral and passesthrough the State of Rajasthan. YourCompany was also a part of theconsortium, which was awarded theRewa Byepass Project on NH 7. Boththe Projects shall generate both fundbased and fee based business foryour Company. It is envisaged thatmore such opportunities would comeup during the current year.

Energy Sector

The Power generation in 2004-05 wasanticipated to touch 583.8 billion Kwh

reflecting a growth of 4.6% over thelast year. The growth of powergeneration in April-December, 2004was 6.5% as compared to 3.4% in thecorresponding period last year.Notwithstanding the substantialgrowth, consumers continue to sufferfrom power shortage.

The CERC has stressed that all futureprojects in generation, transmissionand distribution should be structuredthrough a tariff based transparentcompetitive bidding process. Thiswould go a long way to improveefficiencies in the sector.

Wind Power is one of the newopportunities that have beenidentified by your Company forstructured financing. As per MNES,the installed capacity of wind power inIndia by the end of March, 2005 hasreached to 3595 MW. The financialyear 2004-05 has witnessed thehighest capacity addition of windpower in any financial year so far inIndia. The capacity addition of about1111 MW indicates about 44%growth in comparison to cumulativeinstalled capacity of 2483 MW by theend of last financial year (i.e. 2003-04).

During the year, your Companyparticipated in several major windpower projects including a 6 MWPower Project in Tamil Nadu, a 2.4MW Power Project in Karnataka and a12.5 MW Power Project inMaharashtra. During the year, yourCompany has participated in a 100MW Captive Power Project in theState of Gujarat. All the above projectshave already achieved commercialoperations. Further, your Company isin the process of structuring and

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finalizing a power project in the Stateof West Bengal.

With open access regime gainingground in power generation,substantial opportunities exists forinvestments in this area especially inCaptive Power Sector. Your Companyhas over the years gainedconsiderable experience andexpertise in financing power plantsand is well poised to handle majorprojects in the sector.

Ports

India has around 7500 km of naturalpeninsular coastline strategicallylocated on the crucial East-West traderoute, which links Europe and FarEast. India has 12 major ports and 185minor ports. The major ports of thecountry handle about 75% of themaritime traffic. The Ports constitute amajor focus area of activity.

With rising trend in country’s tradeand increasing manufacturing sectorinvestments especially in exportfocused segments, it is expected thatshipping traffic will increase creatingmajor opportunities in the sector withinvestments aimed at capacityaddition, refurbishment andmodernization of the existing facilitiesat the Indian ports as well as forsetting up of container terminals.

Your Company is in the process ofevaluating some of port projects andexpects to generate substantialbusiness from this sector in thecurrent year.

RENEWABLE ENERGY UNIT (SREU)Non-conventional sources of energyhave emerged as the only viable

options to achieve the goal ofsustainable development. These offertremendous opportunities for Indiabecause of its huge size and abundantsupply of all the natural sources ofenergy. As a result of sustainedefforts in this direction, India is todayat the forefront of international effortto harness renewable energyresources and has one of the largestand most broad-based programmes innon-conventional energy. It has thelargest decentralised solar energyprogramme, the second largest bio-gas and improved stovesprogrammes and the fifth largest windpower programme in the world.

Yet, the gap between achievementand potential remains large.Recognising this, the Indiangovernment has set itself thefollowing targets to be achieved bythe year 2012:

a) out of a total installed capacity of100,000 MW, about 3,409 MW i.e.3.5% is being generated by usingrenewable energy resources. Theaim is to ensure that 10% of theincremental capacity (capacityaddition of further 12,000 MW by2012 is envisaged) in powergeneration be based on renewableenergy sources;

b) deployment of solar water heatingsystems in one million homes;

c) electrification by 'renewable' of atleast one quarter of the 18,000 un-electrified villages (If we add thenumber of homes that have beende-electrified or receive powerintermittently - if at all, the demandpotential would actually be mind-

boggling);

d) deployment of 5 million solarlanterns and 2 million solar homelighting systems;

e) launch of accelerated electrificationof one lac villages by 2007 and onecrore households by 2012;

f) coverage of 30 million householdsthrough improved chulhas (woodstoves);

g) setting up of further 3 million familysize bio-gas plants.

The thrust by the government is theengine that will drive the growth of therenewable energy market. However, afew constraints remain. Briefly, theseinclude (a) the lack of awareness tothe potential and the long termbenefits that lie in switching torenewable energy, (b) affordability, atleast by way of initial expenditure toacquire the systems or change over toenergy efficient technology, (c) thenegative effect of the still-existing'subsidy' market (giving rise to poorquality equipment, or motivation togain financial benefits out of the'subsidy' element, etc.), and finally, (d)inadequate R&D as well as poorquality after-sales-service.

On the positive side, the market inrenewable energy is becomingmature by the day, and the awarenesslevel is increasing rapidly. It isexpected that the constraints thatexist today will become a thing of thepast sooner than later.

Six years ago, in line with yourCompany's pioneering efforts toidentify niche areas, your Companyrecognised the renewable energy

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sector as holding immense promiseand potential. Since then yourCompany has:

i) installed 9,000 solar home lightingsystems in the rural areas of WestBengal.

ii) installed 1,000 water heatingsystems across India.

iii) installed 470 solar water pumps inPunjab, Haryana, and adjoiningareas.

iv) extended (and continues toextend) micro credit to ruralconsumers to encouragerenewable energy usage.

v) funded renewable energyequipment - including solar waterheating systems, solar pumps,solar home lighting systems.

vi) solar traffic booths in New Delhi.

vii) 1,200 solar lanterns in Ladakh,Leh, Kargil, Pithorgarh (these aresome of the remotest of areas inNorth-West India).

viii)developed close relationships withinternational aid agencies andNGOs.

Over the years, your Company hasbuilt relations and establishedcontacts with the major players in thefield of renewable energy andestablished itself as one of thepremier intermediaries financingrenewable energy systems in India.The year 2004-2005 has been the sixthyear of the working of Srei RenewableEnergy Unit (SREU) during which theunit has further added to the volumethat it had generated during theprevious years. The size of portfoliostood to the tune of Rs. 30 Crores.

The micro-financing scheme in solarhome lighting systems gainedmomentum and is poised to scalehigher peak than ever before. Theretail-financing scheme for solar waterheating systems that had also beenlaunched during the last financial yearmade an enormous progress. Thethrust on retail schemes is also beingimplemented through SREU's focuson employees of institutions likeBHEL and other credible PSUs orcorporate so as to reach out to theindividuals at locations spread all overIndia with easy financing options toencourage greater use of systemsbased on renewable energy.

In order to expand its capability tofinance the retail segment, yourCompany has devised a scheme forfinancing 'integrators' involved in themanufacture and distribution of solarsystems. A formal tie-up with onesuch 'integrator' was established. Thearrangement has yielded positiveresults for your Company.

Clean Development Mechanism(CDM), emerging out of the KyotoProtocol, is another area that offers asignificant opportunity for yourCompany. The total market size ofemission reductions on a veryconservative basis will be around 10-20 billion USD per year during thecommitment period of 2008 to 2012assuming a price band of 20-40 USDper ton of carbon emissions. It isexpected that India and China willhave more than 60 per cent of thismarket.

Your Company plans to takeadvantage of the immense potentialthat exists in the renewable energy

sector - including the areas of carbontrading & CDM. While maintaining itsleadership in financing RenewableEnergy, your Company aims to be anactive player in this area as well.

RESOURCESDuring the year under review, yourCompany has concentrated onreducing the overall cost of fundswhile ensuring asset liability match,with the ultimate objective ofcontributing to a stable and profitablebalance sheet. At the same time, yourCompany has been able to raisesubstantial resources from its bankersand financial institutions.

a) Fixed Deposits

Your Company continues to enjoy theconfidence of investors. The totaldeposits outstanding as on 31stMarch, 2005 was Rs. 1544.67 lacs.There were unclaimed matureddeposits of Rs. 98 lacs representing445 depositors as on 31st March,2005 who have been informed aboutthe maturity of deposits with arequest to either renew or claim theirdeposits back.

Your Company’s deposits are rated astAA-(ind) by FITCH which indicateshigh credit quality with strongprotection factors and as AA-(FD) byCARE which indicates high quality byall standards and also classified ashigh investment grade.

b) Institutional / Bank Finance

Your Company mobilized resources tothe extent of Rs. 1607 crores duringthe year as against Rs. 811 crores lastyear and was also able to substantiallylower the cost of borrowings in thecurrent year, thus enabling your

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Company to be more competitive inthe market-place. As a result of RBIrestriction on External CommercialBorrowings (ECBs) by NBFCs, yourCompany has laid emphasis ondomestic sources, comprising of aconsortium of 27 Banks, IndianFinancial Institutions, Mutual Fundsand Retail resources.

Your Company availed FCNR (B)Loans of Rs. 118 crores from banksduring the year at an average cost of4.31%, which was achieved due todiligent forex management.

Your Company also availed Short-Term Loans aggregating Rs. 302crores during the year as against Rs. 92 crores last year.

c) Bonds / Debentures /Commercial Papers

Your Company’s Short-Term DebtProgramme was assigned the highestcredit rating of PR1+ by CreditAnalysis & Research Limited (CARE)and the limit was also enhanced fromRs. 205 crores to Rs. 425 crores.

Your Company issued Short-TermDebt instruments aggregating Rs.1104 crores during the year to variousBanks and Mutual Funds, out of whichRs. 315 crores was by way ofCommercial Paper and Rs. 789 croresby way of Bonds/Debentures.

Your Company also issued Non-Convertible Bonds/Debenturesaggregating to Rs. 35 crores to MutualFunds during the year. TheBonds/Debentures, which hadmaturities upto 3 years, carriedcoupons bench-marked to floatingrate bench-marks.

During the year, your Company

exercised the Call option on 14% Non-Convertible Debentures aggregatingto Rs. 500 lacs in April, 2004.

During the year, your Company alsorepaid the Multi-Option Step Up Bondaggregating Rs. 53 lacs, whichmatured on 31st October, 2004.

d) Securitisation & Co-BrandedProducts

Continuing its efforts to develop newproducts and to raise cost effectivefunds, your Company successfullyeffected a number of securitisationtransactions. During the year 2004-05,an amount of Rs. 652 crores wasraised through securitisation. Apartfrom this during the current year, yourCompany is planning for its first ratedsecuritisation through issuance ofPass Through Certificates (PTCs)backed by Construction Equipment,which will be a new add on to itsefforts of raising cost effective funds.

RISK MANAGEMENTYour Company’s business model isefficient and robust enough tomanage its business opportunities,their associated risks and volatilemarket conditions. It has effectivelymanaged them through complexBusiness Process and high degree ofRisks Management tools to protectinterest of all stakeholders. YourCompany’s business is exposed toseveral Financial Risks and MarketRisks. These are vigilantly monitoredand managed by the experienced anddedicated risk managers at all levelswith proper understanding of risk,adequate systems and checks andbalances duly in place considering thebusiness objectives, risk absorbing

capacity and capital deployment. TheInsurable business risks of yourCompany are grossly covered.

Several appropriate Committees withthe Directors, Senior Executives andProfessional Experts as membersthereof review, within its scope,various risks and formulate decisionsto support the Board in itsimplementation at regular intervals.Your Board has decided to reorientthe Internal Audit activities of theCompany towards Risk Based InternalAudit. Ernst & Young, one of the mostreputed firms in the field, has beenappointed to map the procedure,effective tools, training and helpimplement the process. It is expectedto be completed by October, 2005and put in practice thereafter.

Your Company continues to maintainas usual, a low level of NPAproportionate to its assets and follownorms conforming to therequirements of Foreign LendingInstitutions as against provisioningnorms of RBI.

As of 31st March, 2005, yourCompany’s gross NPAs were 1.28 percent as against 1.08 per cent as thatof 31st March, 2004 read under theconservative and stricter policy ofmaking provisions for the entire NPAsfollowed by the Company, otherwisethe net NPAs of your Company is nil.

HUMAN RESOURCES ACTIVITIESYour Company acknowledges the factthat its employees are its mostvaluable assets. In a fiercelycompetitive service-sector industry, itis the people of the company who areinstrumental in sustaining the

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competitive edge. Your Company hasa comprehensive performanceevaluation system ensuring thatremuneration and rewards arestrongly performance-linked.

Your Company’s people areencouraged to enhance their aptitudethrough training programmes tofurther their prospects within theorganisation. Apart from that, yourCompany fosters an excellent andchallenging work atmosphere wherepeople are always free to experimentwith ideas that are aimed to providebetter services to the customers. Thishas been instrumental in keeping yourCompany to be on the forefront ofinnovations.

Your Company continues to inductcompetent professionals for itspresent and future needs. The numberof employees in your Companyincreased from 269 in March, 2004 to445 in March, 2005. With 34 officesspread across India and 3 overseasoffices, today your Company has astrong team of competentprofessionals ready and eager to scalegreater heights.

During the year under review, yourCompany implemented the EmployeeEquity Participation Plan (EEPP)Scheme in order to motivate andretain the employees. TheCompensation Committee of yourCompany has granted a first trancheof 9,68,200 Employee EquityParticipation Plan (EEPP) units toeligible employees, includingExecutive Directors but excludingpromoter directors, of your Companyand its subsidiaries.

INFORMATION TECHNOLOGYYour Company realises howtechnology can provide the edge toremain ahead of competition and thusconstantly upgrades its technologyboth in terms of hardware andsoftware. Using technology tonetwork all the offices and to integratefront-office with back-officeoperations, your Company hasadopted new software MicrosoftNavison Axapta which would enablefaster information exchange anddissemination, thereby expediting alldecision making. Your Company’stechnology initiatives are focused atenhancing value, offering customerconvenience and improved service atoptimal cost.

INTERNAL CONTROL AND AUDITYour Company has a separate InternalAudit Team, which functions directlyunder the Audit Committee of theBoard of Directors.

Internal Control and Audit is animportant procedure and it’seffectiveness is reviewed by AuditCommittee of your Company on anongoing basis. The system of Internalcontrol provides a well documentedprocedure and are applied across theentire operation of your Company. Itcovers infrastructure and corporatefunding, strategic, retail & microconstruction equipment andrenewable energy equipmentfinancing. The system is designed toensure effective and efficientoperation and compliance ofapplicable laws and regulations and toprovide reasonable assurance to themitigation of various risks. The variousinternal and financial controls are

subject to independent review byinternal audit. The report of all thesereviews are placed to the AuditCommittee of the Board andappropriate corrective action is takenwhere required.

Recently, the Board of your Companyhas appointed Ernst & Young asconsultant for transforming into RiskBased Internal Audit System asrecommended by Bassel Committee IIand accepted by Reserve Bank ofIndia for implementation in IndianFinancial Institutions.

The system of Internal Control andAudit of your Company is adequateconsidering the size and complexity ofits business.

ENVIRONMENT PROTECTIONPOLICYYour Company endorses the globalconcern towards environmentprotection and feels it is key to anylong-term sustainable development.Towards this end, a separateEnvironmental Management Teamhas been set up to ensure thatenvironmental dimensions arefactored in into your Company’sbusiness areas, especially whileundertaking review, clearance andsupervision of all projects. YourCompany ensures that its assets andproject financing do not causeadverse environmental and socialimpacts.

Your Company is also gettingnecessary guidance and training fromInternational Finance Corporation (IFC)of the World Bank Group and otherhighly reputed multi-lateral agenciesto support environmental issues.

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SOCIAL RESPONSIBILITYRecognising its social responsibility,your Company had earlier created apublic charitable trust in the name of‘SREI Foundation’ with the objectiveof granting scholarships and otherfinancial assistance to deserving andtalented candidates. This year, yourCompany has gone one step furtherwhere the employees have decided todonate part of their annual prizemoney to SREI Foundation in order topart-sponsor the education of thechildren of the non-executive sectionof the SREI family.

The Fund also supports setting up ofschools, colleges, medical andscientific research institutions.Donations to SREI Foundation qualifyfor deduction under Section 80G ofthe Income Tax Act, 1961. YourCompany has granted donations ofRupees Forty lacs to SREI Foundationtill date.

Your Company also promotes all-round development of a cleanenvironment and helps in propagatingawareness and imparting educationfor the betterment of agriculture /horticulture and other similaractivities.

CORPORATE GOVERNANCEA separate section on CorporateGovernance and a Certificate from theAuditors of your Company regardingcompliance with the requirements ofcorporate governance as stipulatedunder Clause 49 of the ListingAgreement with the Stock Exchanges,form part of the Annual Report.

SUBSIDIARY COMPANIESDuring the year under review, your

Company, in order to cash onprofitable leasing business inGermany and Russia invested furtherEuro One million in the Share capitalof IIS International InfrastructureServices GmbH, the subsidiarycompany incorporated in Germany.

SREI Capital Markets Limited, asubsidiary of your Companyincorporated a subsidiary company inthe name of ‘Bengal SREIInfrastructure Development Limited’during the year under review inpartnership with West BengalIndustrial Development Corporation(WBIDC).

The audited statement of accountsalong with the report of the Board ofDirectors relating to your Company’ssubsidiaries in India and Overseas viz.,SREI Forex Limited, SREI CapitalMarkets Limited, SREI InsuranceAgency & Broking Limited, SREIInsurance Services Limited, SREIVenture Capital Limited, SREI MoneyMall Limited, Global Investment TrustLimited and IIS InternationalInfrastructure Services GmbH, for thefinancial year ended 31st March, 2005along with the statement pursuant toSection 212 of the Companies Act,1956 are annexed.

PARTICULARS OF EMPLOYEESAs required by the provisions ofSection 217(2A) of the CompaniesAct, 1956 read with the Companies(Particulars of Employees) Rules, 1975as amended, the names and otherparticulars of the employees are setout in the annexure to the Directors’Report. However, as per theprovisions of Section 219(1)(b)(iv) ofthe Companies Act, 1956, the report

and the accounts are being sent to allshareholders excluding the aforesaidinformation. Any shareholderinterested in obtaining suchparticulars may write to the CompanySecretary at its Registered Office.

PARTICULARS OF CONSERVATIONOF ENERGY, TECHNOLOGYABSORPTION, FOREIGN EXCHANGEEARNINGS AND OUTFLOWYour Company has no activity relatingto Conservation of Energy andTechnology Absorption as stipulatedin the Companies (Disclosure ofparticulars in the Report of Board ofDirectors) Rules, 1988. However, yourCompany uses informationtechnology extensively in itsoperations.

During the year under review, the totalforeign exchange outflow of yourCompany was Rs. 10,640 lacs(previous year Rs. 11,247 lacs) and ithad no foreign exchange earnings.

SREI WEBSITEThe website of your Company,www.srei.com, carries acomprehensive database ofinformation of interest to the investorsincluding on the financial results ofyour Company, dividend declared, anyprice sensitive information disclosedto the regulatory authorities from timeto time, corporate profile andbusiness activities of your Companyand the services rendered by yourCompany to its investors.

DIRECTORSDuring the year under review, Mr.Suneet K. Maheshwari was appointedas Additional Director as well as

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Executive Director of your Companyw.e.f. 30th October, 2004. He wasthereafter appointed as Director ofyour Company at the ExtraordinaryGeneral Meeting of your Companyheld on 10th March, 2005.

In accordance with the provisions ofthe Companies Act, 1956 and yourCompany's Articles of Association,Mr. Salil K. Gupta, Mr. V. H. Pandyaand Mr. Sunil Kanoria retire by rotationat the ensuing Annual GeneralMeeting and are eligible for re-appointment. The brief resume /details relating to Directors who are tobe appointed / re-appointed arefurnished in the Notice of the ensuingAnnual General Meeting.

DIRECTORS’ RESPONSIBILTYSTATEMENTIn terms of provisions of Section 217(2AA) of the Companies Act, 1956(Act), your directors confirm:

(i) that in the preparation of theannual accounts for the financialyear ended 31st March, 2005, theapplicable accounting standardshave been followed along withproper explanation relating tomaterial departures;

(ii) that the directors have selectedsuch accounting policies andapplied them consistently andmade judgements and estimatesthat are reasonable and prudent soas to give a true and fair view ofthe state of affairs of the Companyat the end of the financial year andof the profit or loss of theCompany for the year;

(iii) that the directors have takenproper and sufficient care for themaintenance of adequateaccounting records in accordancewith the provisions of this Act forsafeguarding the assets of theCompany and for preventing anddetecting fraud and otherirregularities; and

(iv) that the directors have preparedthe annual accounts for thefinancial year ended 31st March,2005 on a going concern basis.

AUDITORSM/s. Deloitte Haskins & Sells,Chartered Accountants, retire asAuditors of your Company at theconclusion of the ensuing AnnualGeneral Meeting and have confirmedtheir eligibility and willingness to

accept the office of Auditors, if re-appointed. Members are requested toconsider their re-appointment forfinancial year ending 31st March,2006 on remuneration to be decidedby the Board of Directors of yourCompany.

ACKNOWLEDGEMENTYour Directors would like to expresstheir grateful appreciation for theexcellent support and co-operationreceived from the FinancialInstitutions, Banks, GovernmentAuthorities, Reserve Bank of India,Securities & Exchange Board of India,Indian and overseas Stock Exchanges,Credit Rating Agencies, Customers,Vendors, Depositors andShareholders during the year underreview. Your Directors also place onrecord their deep appreciation of thevaluable contribution of theemployees at all levels for theprogress of your Company during theyear and look forward to theircontinued co-operation in realisationof the corporate goals in the yearsahead.

On behalf of the Board of Directors

M. S. VermaKolkata, 28th June, 2005 Chairman

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For Deloitte Haskins & SellsChartered Accountants

A. BhattacharyaPlace : Kolkata PartnerDated : 28th June, 2005 Membership No. 054110

ToThe Members,SREI Infrastructure Finance Limited

We have examined the compliance of conditions of corporate governance by SREI Infrastructure Finance Limited(formerly SREI International Finance Limited) for the year ended 31st March, 2005, as stipulated in Clause 49 of theListing Agreement of SREI Infrastructure Finance Limited with the Stock Exchanges.

The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination waslimited to procedures and implementation thereof, adopted by SREI Infrastructure Finance Limited for ensuring thecompliance of the conditions of the Corporate Governance. It is neither an audit nor an expression of opinion on thefinancial statements of the Company.

In our opinion and to the best of our information and according to the explanations given to us, we certify that SREIInfrastructure Finance Limited has complied with the conditions of Corporate Governance as stipulated in the abovementioned Listing Agreement.

We state that no investor grievance is pending against SREI Infrastructure Finance Limited as per records maintainedby the Share Transfer & Investors’ Grievance Committee.

We further state that such compliance is neither an assurance as to the future viability of SREI Infrastructure FinanceLimited nor the efficiency or effectiveness with which the management has conducted the affairs of the Company.

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Corporate Governance is thecombination of voluntary practicesand compliance with laws andregulations leading to effective controland management of the organisation.Good Corporate Governance leads tolong term shareholder value andenhances interest of otherstakeholders.

SREI believes in adopting andadhering to the best corporategovernance practices andcontinuously benchmarking itselfagainst each such practice in theindustry. SREI understands andrespects its fiduciary and trusteeshiprole and responsibility to itsstakeholders and strives hard to meettheir expectations.

The Company’s Equity shares arepresently listed on three StockExchanges in India and the GlobalDepository Receipts (GDRs) are listedon London Stock Exchange. SREI hascomplied in all material respects with

the features of Corporate GovernanceCode as per Clause 49 of the ListingAgreement with the domestic StockExchanges. In accordance with Clause49 of the Listing Agreement with thedomestic Stock Exchanges and bestpractices followed internationally onCorporate Governance, the details ofcompliances by the Company for theyear ended 31st March, 2005 are asunder:

A. MANDATORY REQUIREMENTS1. Company’s philosophy onCode of Governance

Your Company has endeavoured tobenchmark itself against globalstandards in all areas, includingCorporate Governance. GoodCorporate Governance impliesoptimum utilisation of the resourcesand ethical behaviour of the enterpriseto enhance the shareholders’ valuewith strong emphasis ontransparency, accountability and

integrity, which are the primaryobjectives of SREI.

2. Board of Directors

• Composition

The Board has strength of 11Directors as on 31st March, 2005. TheBoard comprises of Executive, Non-Executive and Nominee Directors.One director is nominee director, onedirector is non-executive director, fourdirectors are executive directors andfive directors are non-executive andindependent directors including theChairman.

None of the Directors on the Board isa member of more than 10committees and Chairman of morethan 5 committees across allcompanies in which he is a Director.All the Directors have made necessarydisclosures regarding committeepositions occupied by them in othercompanies.

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* Indian Renewable Energy Development Agency Limited, New Delhi

• Attendance of each Director at Board meetings and the last AGM

Eight Board meetings were held during the year 2004-2005.

The Composition of the Board of Directors is in conformity with the Listing Agreement. The details of the Board of Directorsas on 31st March, 2005 are as under :

Sl. No. Directors

1 Mr. Salil K Gupta (Chief Mentor) Non Executive & Independent

2 Mr. M. S. Verma (Chairman) Non Executive & Independent

3 Mr. V. H. Pandya Non Executive & Independent

4 Mr. S. Rajagopal Non Executive & Independent

5 Mr. Sunil Kanoria Non Executive

6 Mr. B. Swaminathan Nominee Director of IREDA*

7 Mr. R. Sankaran Non Executive & Independent

8 Mr. Hemant Kanoria Vice Chairman & Managing Director

9 Mr. P. K. Pandey Wholetime Director

10 Mr. K. K. Mohanty Wholetime Director

11 Mr. Suneet K. Maheshwari Wholetime Director

Directors No. of Board Attendance at the last AGMmeetings attended held on 28th August, 2004

Mr. Salil K Gupta 8 Yes

Mr. M. S. Verma* 5 Yes

Mr. V. H. Pandya 7 Yes

Mr. S. Rajagopal 7 Yes

Mr. Sunil Kanoria 8 Yes

Mr. B. Swaminathan 7 Yes

Mr. R. Sankaran* 5 Yes

Mr. Hemant Kanoria 8 Yes

Mr. P. K. Pandey 8 Yes

Mr. K. K. Mohanty 8 Yes

Mr. Suneet K. Maheshwari** 4 N.A.

* Appointed as Director of the Company w.e.f. 13th April, 2004** Appointed as Director & Wholetime Director of the Company w.e.f. 30th October, 2004

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• Number of other Companies or Committees in which the Director is a Director / Chairman

Directors No. of other Indian Public Limited No. of Committees (other than SREI InfrastructureCompanies in which Director Finance Limited) in which Member

Mr. Salil K. Gupta 3* 2 (Chairman – 1)

Mr. M. S. Verma 2* 2 (Chairman – 1)

Mr. V. H. Pandya 6* 4 (Chairman – 1)

Mr. S. Rajagopal 4* 4

Mr. Sunil Kanoria 3* 1 (Chairman – 1)

Mr. B. Swaminathan 1 Nil

Mr. R. Sankaran 2* 1 (Chairman – 1)

Mr. Hemant Kanoria 7* 2

Mr. P. K. Pandey 2* Nil

Mr. K. K. Mohanty 3* 2

Mr. Suneet K. Maheshwari 1 1 (Chairman – 1)

* In addition, (a) Mr. Salil K. Gupta is a Director of one Private Limited Company; (b) Mr. M. S. Verma is a Director of threePrivate Limited Companies; (c) Mr. V. H. Pandya is a Director of one Private Limited Company; (d) Mr. S. Rajagopal is aDirector of four Private Limited Companies; (e) Mr. Sunil Kanoria is a Director of one overseas Company and one PrivateLimited Company; (f) Mr. R. Sankaran is a director of two Private Limited Companies; (g) Mr. Hemant Kanoria is a Directorof one Private Limited Company and one overseas Company; (h) Mr. P. K. Pandey is an Alternate Director of one PrivateLimited Company; and (i) Mr. K. K. Mohanty is a Director of one Private Limited Company.

• Number of Board meetings heldand the dates on which held

Eight Board meetings were heldduring the year 2004-2005 on 13thApril, 2004, 10th June, 2004, 29thJuly, 2004, 28th August, 2004, 30thOctober, 2004, 31st January, 2005,11th February, 2005 and 10th March,2005.

3. Audit Committee

• Terms of Reference andComposition, Name of Membersand Chairman

The Audit Committee presentlycomprises Mr. Salil K. Gupta, Mr. V. H.Pandya, Mr. S. Rajagopal and Mr. B.Swaminathan, all of them beingIndependent Non Executive Directors.Mr. Salil K. Gupta, Chief Mentor &Director of the Company is theChairman of the Audit Committee. The

Committee also invites seniorexecutives, as it considers appropriateto be present at the meetings of theCommittee. The Head of Internal AuditDepartment attends the meeting ofthe Audit Committee and theCompany Secretary acts as theSecretary to the Audit Committee. TheTerms of Reference of this Committeeincludes ensuring proper disclosuresin the financial statements,recommending re-appointment ofexternal auditors and fixation of theirremuneration, reviewing annualfinancial statements beforesubmission to the Board, reviewing

adequacy of internal control systemsand other matters specified for AuditCommittees in Section 292A of theCompanies Act, 1956 and under theListing Agreements.

• Meetings and attendance duringthe year

Four meetings of the AuditCommittee were held during the year2004-2005 on 10th June, 2004, 29thJuly, 2004, 30th October, 2004 and31st January, 2005. The attendance ofeach member of the Committee isgiven below :

Directors No. of Meetings attended

Mr. Salil K. Gupta 4

Mr. V. H. Pandya 4

Mr. B. Swaminathan 4

Mr. S. Rajagopal 4

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* includes Sitting fees paid for various Board Committee meetings# In addition, they have been granted 1,00,000 Employee Equity Participation (EEPP) Units each

(All figures in Rupees)

• Details of remuneration paid/payable to Directors for the year ended 31st March, 2005 are as follows:

4. Remuneration of Directors

Directors Sitting Fees* Salary & Perquisites Commission Total

Mr. Salil K. Gupta 2,10,000 - - 2,10,000(Chief Mentor)

Mr. M. S. Verma 25,000 - - 25,000(Chairman)

Mr. V. H. Pandya 61,000 - - 61,000

Mr. S. Rajagopal 55,000 - - 55,000

Mr. Sunil Kanoria 1,42,000 - - 1,42,000

Mr. B. Swaminathan 55,000 - - 55,000

Mr. R. Sankaran 25,000 - - 25,000

Mr. Hemant Kanoria N.A. 27,97,240 12,00,000 39,97,240(Vice Chairman & Managing Director)

Mr. P. K. Pandey# N.A. 19,50,000 - 19,50,000(Wholetime Director)

Mr. K. K. Mohanty# N.A. 23,85,394 - 23,85,394(Wholetime Director)

Mr. Suneet K. Maheshwari N.A. 8,08,065 - 8,08,065(Wholetime Director)

The appointment of ManagingDirector and Wholetime Directors isgoverned by resolutions passed bythe Board of Directors and theShareholders of the Company, whichcovers the terms and conditions ofsuch appointment. Payment ofremuneration to Managing Directorand Wholetime Directors is governedby the respective Agreementsexecuted between them and theCompany. The Non-ExecutiveDirectors are paid remuneration onlyby way of Sitting Fees for eachmeeting of the Board or anyCommittee thereof attended by them.

5. Share Transfer and Investors’Grievance Committee

• Details of the Members,Compliance Officer and No. ofComplaints received

To expedite the process of sharetransfers, the Board of your Companyhas delegated the power of sharetransfers to the Share Transfer andInvestors’ Grievance Committee. TheShare Transfer and Investors’Grievance Committee meets at leastonce in a fortnight to approve sharetransfer and other matters. TheCommittee comprises Mr. Salil K.Gupta, Chief Mentor of the Company,Mr. Hemant Kanoria, Vice Chairman &Managing Director of the Company,and Mr. Sunil Kanoria, Non ExecutiveDirector. During the year 2004-2005,the Share Transfer and Investors’Grievance Committee met 26 times.Mr. Sandeep Lakhotia, CompanySecretary is the Compliance Officer ofthe Company.

Total number of shares physically

transferred during the year 2004-2005was 93,513 compared to 1,16,379during the year 2003-2004. Thenumber of shares transferred duringthe year was lower vis-à-vis theprevious year, since there was anincrease in the number of shares thatwere dematerialised.

During the financial year ended 31stMarch, 2005, the Company received26 complaints from the shareholdersand none of the complaints receivedwere pending as on that date.

6. General Body Meetings

• Details of the location of the lastthree AGMs and the details of theresolutions passed

The date, time and venue of the lastthree AGMs of the Company havebeen provided in the section on

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Shareholders’ Information in theAnnual Report. All the resolutions setout in the respective Notices werepassed by the Shareholders.

No Special Resolution requiring apostal ballot is being proposed at theensuing Annual General Meeting ofthe Company.

7. Disclosures

• Disclosures on materiallysignificant related partytransactions i.e. transactions of theCompany of material nature, with itspromoters, the directors or themanagement, their subsidiaries orrelatives etc. that may havepotential conflict with the interestsof Company at large

No transaction of material nature hasbeen entered into by the Companywith its directors or management and

their relatives, etc. that may have apotential conflict with the interests ofthe Company. The Register ofContracts containing transactions, inwhich directors are interested, isplaced before the Board regularly.

Transactions with the related partiesare disclosed in Note No. 17 ofSchedule 15 to the Accounts in theAnnual Report.

• Details of non-compliance by theCompany, penalties, stricturesimposed on the Company by StockExchange or SEBI or any statutoryauthority, on any matter related tocapital markets, during the lastthree years

During the last three years, there wereno strictures or penalties imposed byeither Stock Exchanges or SEBI or anystatutory authority for non-compliance

of any matter related to the capitalmarkets.

• SREI Code of Conduct forPrevention of Insider Trading

In accordance with the Securities andExchange Board of India (Prohibitionof Insider Trading) Regulations, 1992as amended, the Board of Directors ofthe Company formulated SREI Codeof Conduct for Prevention of InsiderTrading in the shares and securities ofthe Company by its Directors anddesignated employees. Mr. SandeepLakhotia, Company Secretary is theCompliance Officer for monitoringadherence to the Regulations for thepreservation of price sensitiveinformation, pre-clearance of tradesand implementation of the Code ofConduct for the prevention of InsiderTrading.

• Half-yearly report sent to each household of Since half-yearly and annual results of theshareholders Company are published in leading Newspapers having

wide circulation and regularly put on Company’swebsite, these are not sent individually to the shareholders.

• Quarterly results The Quarterly results of the Company are published in leadingNewspapers having wide circulation and regularly put onCompany’s website.

• Newspapers in which results are normally published Business Standard and Ganashakti.

Pursuant to Clause 51 of the Listing Agreement, all datarelated to quarterly financial results, shareholding pattern, etc.are hosted on the Electronic Data Information Filing andRetrieval (EDIFAR) website maintained by SEBI in associationwith National Informatics Centre, within the time frameprescribed in this regard.

• Any website, where displayed Yes, at the Company’s website www.srei.com

• Whether it also displays official news releases Yes

• The presentations made to institutional Yesinvestors or to the analysts

• Whether MD & A is a part of Annual Report or not Yes

8. Means of Communication

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a) Chairman of the Board No separate office is maintained for the Chairman of the Company. However, allexpenses incurred by the Chairman in course of performance of official duties arereimbursed to him by the Company.

b) Remuneration Committee The Company already has a Compensation Committee of the Board in place and thesame comprises majority of non-executive and independent directors; the Chairmanof the Committee being an Independent Director. The terms of reference of theCompensation Committee are to formulate the detailed terms and conditions of theEmployees Stock Option Scheme (ESOS), administration and superintendence of thesame and to ensure proper compliance of all rules & guidelines issued by Securitiesand Exchange Board of India and other applicable laws. Two meetings of theCompensation Committee were held during the year 2004-2005 on 9th June, 2004 and 29th October, 2004. The Chairman of Compensation Committee was present at the last Annual General Meeting of the Company.

c) Shareholders’ Rights As the Company’s half yearly results are published in a leading English newspaperhaving a wide circulation and a Bengali newspaper (having circulation in Kolkata), thesame are not sent to the shareholders of the Company. There is nodeclaration/publication of second half yearly results as the audited annual results aretaken on record by the Board and then communicated to the shareholders throughthe Annual Report.

d) Postal Ballot No Special Resolution requiring a postal ballot was placed before the last AnnualGeneral Meeting of the Company held on 28th August, 2004.

Similarly, no Special Resolution requiring a postal ballot is being proposed at theensuing Annual General Meeting of the Company.

9. General Shareholders’ Information

A section on Shareholders’ Information is separately provided in the Annual Report.

B. NON MANDATORY REQUIREMENTS

DisclaimerIn this Annual Report we have disclosedforward-looking information to enableinvestors to comprehend our prospectsand take informed investment decisions.This report and other statements - writtenand oral - that we periodically make containforward-looking statements that set outanticipated results based on themanagement’s plans and assumptions.

We have tried wherever possible to identifysuch statements by using words such as‘anticipate’, ‘estimate’, ‘expects’, ‘projects’,‘intends’, ‘plans’, ‘believes’, and words ofsimilar substance in connection with anydiscussion of future performance.

We cannot guarantee that these forward-looking statements will be realised,although we believe we have been prudentin assumptions. The achievement ofresults is subject to risks, uncertainties and

even inaccurate assumptions. Shouldknown or unknown risks or uncertaintiesmaterialise, or should underlyingassumptions prove inaccurate, actualresults could vary materially from thoseanticipated, estimated or projected.Readers should bear this in mind.

We undertake no obligation to publiclyupdate any forward-looking statements,whether as a result of new information,future events or otherwise.

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1. Annual General Meeting :a. Date and Time : Saturday, the 17th September, 2005 at 10.30 a.m.

b. Venue : Science City Mini Auditorium, JBS Haldane Avenue, Kolkata – 700046

2. Financial Calendar (Tentative) :a. Financial reporting for 2005-06 :

Quarter ending 30th June, 2005 : July, 2005

Quarter/Half year ending30th September, 2005 : October / November, 2005

Quarter ending 31st December, 2005 : January, 2006

Year ending 31st March, 2006 : May / June, 2006

b. Annual General Meeting for the yearending on 31st March, 2006 : August/September, 2006

3. Book Closure Date : Thursday, 14th July, 2005 to Friday, 22nd July, 2005 (both days inclusive)

4. Date for payment of Dividend : On or after 19th September, 2005

5. Listing on Stock Exchanges : The Equity Shares and other Securities of the Company are presently listedon the following Stock Exchanges:

a. The Calcutta Stock Exchange Association Limited7, Lyons Range, Kolkata – 700 001

b. The Stock Exchange, MumbaiPhiroze Jeejeebhoy Towers, Dalal Street, Mumbai – 400 001

101

Month National Stock Mumbai StockExchange Exchange

High Low High LowRs. Rs. Rs. Rs.

April, 2004 19.40 12.55 20.00 12.75

May, 2004 18.15 12.60 18.25 12.85

June, 2004 18.40 14.00 19.80 13.85

July, 2004 24.40 16.50 24.05 17.10

August, 2004 21.80 16.60 22.00 17.25

September, 2004 20.85 17.50 21.25 18.00

October, 2004 25.00 19.70 25.00 21.05

November, 2004 32.85 21.80 33.00 21.60

December, 2004 52.40 29.75 52.25 30.00

January, 2005 56.10 40.85 56.10 40.50

February, 2005 61.40 50.10 61.50 49.70

March, 2005 62.50 41.10 62.75 41.05

c. National Stock Exchange of India LimitedExchange Plaza, 5th Floor, Plot no. C/1, G Block,Bandra-Kurla Complex, Bandra (E), Mumbai – 400 051

The Global Depository Receipts (GDRs) issued by the Company are listedand admitted to trading on London Stock Exchange w.e.f. 21st April, 2005.

The Debt securities of the Company are listed on the WholesaleDebt Market (WDM) Segment of the National Stock Exchange ofIndia Limited (NSE).

6. Listing Fees : Listing fees for 2005-06 have been paid to all the abovementioneddomestic and overseas Stock Exchanges as per the Listing Agreement.

7. ISIN Numbers : Equity Shares - INE872A01014Unsecured Subordinated Bonds - INE872A10015Detachable Tradable Warrants - INE872A13019Global Depository Receipts (GDRs) - US78465V2043

8. Stock Codes (Equity Shares & GDRs) : Equity SharesCSE - 29051, BSE - 523756 and NSE - SREINTFIN

Global Depository Receipts (GDRs)London Stock Exchange - SRI

9. Stock Market Data :

102

AGM Year Venue Date Time

19th* 2003/04 “Vishwakarma”, 28/8/2004 10.30 a.m.86C, Topsia Road (South), (Saturday)Kolkata - 700 046

18th** 2002/03 ------- do ------- 30/8/2003 10.30 a.m.(Saturday)

17th*** 2001/02 ------- do ------- 31/8/2002 10.30 a.m.(Saturday)

10. Registered Office :a. Address : “Vishwakarma”, 86C, Topsia Road (South), Kolkata – 700 046b. Telephone Nos. : 1600-345-7734 (Toll free), 91-33-2285 0112/3/4c. Facsimile No. : 91-33-2285 7542/8501d. Website : www.srei.come. Email : corporate@srei.com

11. Registrar and Share TransferAgent’s details :

a. Name & Address : Maheshwari Datamatics Private Limited6 Mangoe Lane, 2nd Floor, Kolkata 700001

b. Telephone Nos. : 91-33-2243 5029/5809, 2248 2248c. Facsimile No. : 91-33-2248 4787d. Email : mdpl@cal.vsnl.net.in

12. Financial Year : 1st April to 31st March

13. Particulars of Past three AGMs :

Performance in comparison to BSE Sensex (monthly High)

* One Special Resolution was passed:• To approve change of name of the Company from ‘SREI International

Finance Limited’ to ‘SREI Infrastructure Finance Limited’.** Five Special resolutions were passed:• To approve keeping of Register of Members etc. in the office of

Registrar and Share Transfer Agents.

103

14. Distribution of Shareholding ason 31st March, 2005

*inclusive of dividend distribution tax

15. Dividend History (Last 5 Years) Financial Year Dividend Per Total Dividend*ended Share (Rs.) (Rs. in Lacs)

31.03.2004 1.50 903

31.03.2003 1.00 601

31.03.2002 1.20 639.54

31.03.2001 1.20 704.77

31.03.2000 1.00 543.11

No. of Shares No. of No. ofShareholders Shares

Total % Total %

Up to 500 14790 83.94 2660008 4.99

501 to 1000 1415 8.03 1189955 2.23

1001 to 2000 634 3.60 1037973 1.95

2001 to 3000 224 1.27 579397 1.09

3001 to 4000 100 0.57 364139 0.68

4001 to 5000 129 0.73 619817 1.16

5001 to 10000 143 0.81 1076504 2.02

10001 and above 184 1.05 45767113 85.88

Total 17619 100.00 53294906 100.00

• To approve holding of office or place of profit by Mr. P. K. Pandey in SREIForex Limited and SREI Venture Capital Limited, subsidiaries of theCompany.

• To approve holding of office or place of profit by Mr. K. K. Mohanty inSREI Forex Limited, subsidiary of the Company.

• To approve voluntary delisting of securities from various StockExchanges.

• To approve alteration of main objects clause contained in Memorandumof Association (voted through postal ballot).

*** Three Special resolutions were passed:• To approve holding of office or place of profit by Mr. Hemant Kanoria in

SREI International Securities Limited, subsidiary of the Company.• To approve holding of office or place of profit by Mr. S. S. Chaturvedi in

Global Investment Trust Limited, subsidiary of the Company.• To approve voluntary delisting of securities from various Stock

Exchanges.An Extraordinary General meeting of the Company was also held onThursday, the 10th March, 2005 at “Vishwakarma”, 86C Topsia Road(South), Kolkata – 700 046 at 10.30 a.m.

104

17. Equity Share Capital history : The issued, subscribed and paid up Capital of the Company consists of5,32,94,906 Equity shares of Rs. 10/- each fully paid up and allotted as under:

16. Categories of Shareholdersas on 31st March, 2005 :

Category No. of Percentage of shares held Shareholding

Promoters (including promoters group) 16518533 30.99

Foreign Institutional Investors (FIIs)

- Citicorp Global Market MauritiusPrivate Limited 2601548 4.88

- Merill Lynch CapitalMarkets Espana S.A. 2294597 4.31

- Deutsche Securities Limited 2108636 3.96

- DEG, Germany 1881818 3.53

- FMO, Netherlands 750000 1.41

- Morgan Stanley & InternationalLimited 640169 1.20

- Founders AssetManagement LLC 555321 1.04

Banks, Mutual Funds & InstitutionalInvestors 276910 0.52

Public

- Private Corporate Bodies 15775059 29.60

- Indian Public 9737040 18.27

NRIs / OCBs 152921 0.29

Directors 2354 0.00

GRAND TOTAL 53294906 100.00

Date of Allotment No. of Shares Issue Price(Rs. per Share)

30.03.1985 2742 10

27.06.1986 31600 10

24.05.1987 16000 10

13.12.1988 5000 10

30.05.1990 608558 10

20.04.1991 256100 10

31.08.1992 3220000 10

13.01.1994 4140000 20

13.11.1997 45454545 22

05.09.1998 27688 15

01.06.1999 5500 10

Total 53767733

Less: Shares forfeited on 14.03.2000 472827

Total Shares as on date 53294906

105

18. Credit Ratings for Fixed Deposits :a. CARE : AA- (FD) which indicates high quality by all standards and also classified

as high investment grade.

b. FITCH Ratings India Pvt. Ltd. : tAA- (ind) which indicates high credit quality with strong protection factors.

19. Measures adopted to protect theinterests of the Shareholders :

a. Share Transfer Processing : Requests for share transfers are cleared and advices mailed within a timeperiod of 30 days from the date of receipt, if the same are found to be validin all respects. The Share Transfer and Investors’ Grievance Committeemeets at least once in a fortnight. During the year 2004-2005, the ShareTransfer and Investors’ Grievance Committee met 26 times. Total numberof shares physically transferred during the year 2004-2005 was 93,513equity shares. There are no legal cases relating to transfer of shares.

b. Bad Delivery : In case of Bad Delivery, the relevant documents are sent immediately afterspecifying the defects through a covering letter.

c. Redressal of Grievances : Necessary system has been put in place in order to attend with promptnessany grievances or queries by the Shareholders. The Shareholders can alsoemail their queries/grievances to investor.relations@srei.com.

d. Prevention of Fraudulent Transfers : A locking provision is in existence whereby, whenever any intimation isreceived from the shareholders regarding loss of shares or of any legaldispute, the shares are immediately kept locked so that fraudulent transferis stalled.

e. Dematerialisation of Shares : The Equity shares of the Company are permitted to be traded only indematerialised form with effect from 24th July, 2000 and are available fordemat under both the Depository Systems in India - National SecuritiesDepository Limited (NSDL) and Central Depository Services (India) Limited(CDSL).

As on 31st March, 2005, a total of 5,14,87,559 Equity shares of theCompany, which forms 96.61% of Share Capital, stand dematerialised.

20. Address for Shareholders’ : The Company Secretarycorrespondence SREI Infrastructure Finance Limited

‘Vishwakarma’, 86C Topsia Road (South), Kolkata - 700 046Email : secretarial@srei.com

21. Transfer of Unclaimed amounts to : Pursuant to Section 205C of the Companies Act, 1956, dividends that are Investor Education and Protection unpaid/unclaimed for a period of seven years from the date they became Fund due for payment are required to be transferred by the Company to the

Investor Education and Protection Fund (IEPF) administered by the CentralGovernment. Given below are the dates of declaration of dividend and corresponding dates when unpaid/unclaimed dividends are due for transfer to IEPF:

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Financial Date of Declaration Due Date ofYear of Dividend Transfer to IEPF

1998 - 1999 31st July, 1999 17th September, 2006

1999 - 2000 (Interim) 9th May, 2000 26th June, 2007

2000 - 2001 15th September, 2001 21st October, 2008

2001 - 2002 31st August, 2002 6th October, 2009

2002 - 2003 30th August, 2003 5th October, 2010

2003 - 2004 28th August, 2004 3rd October, 2011

The shareholders are advised to claim the unencashed dividends lying inthe unpaid dividend accounts of the Company before the due dates forcrediting the same to the Investor Education and Protection Fund.

During the year under review, the Company has credited a sum of Rs.6,47,393.61 to the Investor Education and Protection Fund pursuant toSection 205C of the Companies Act, 1956 and the Investor Education andProtection Fund (Awareness and Protection of Investors) Rules, 2001.

22. Nomination : Individual shareholders holding shares singly or jointly in physical form cannominate a person in whose name the shares shall be transferable in caseof death of the registered shareholder(s). Nomination facility in respect ofshares held in electronic form is also available with the depositoryparticipants as per bye-laws and business rules applicable to NSDL andCDSL. Nomination forms can be obtained from the Company’s Registrarand Share Transfer Agent.

23. Electronic Clearing Service (ECS) : SEBI had vide its Circular No. DCC/FITTCIR-3/2001 dated October 15, 2001advised that all companies should mandatorily use ECS facility, whereveravailable. In the absence of ECS facility, companies may use warrants fordistributing the dividends and vide its Circular No. D&CC/FITTCIR-04/2001dated November 13, 2001, SEBI had advised companies to mandatorilyprint the Bank Account details furnished by the Depositories, on thedividend warrants. This ensures that the dividend warrants, even if lost orstolen, cannot be used for any purpose other than for depositing the moneyin the accounts specified on the dividend warrants and ensures safety forthe investors. However, members who wish to receive dividend in anaccount other than the one specified while opening the DepositoryAccount, may notify their DPs about any change in the Bank Accountdetails.

24. Secretarial Audit for Reconciliation : As stipulated by SEBI, a qualified practising Company Secretary carries outof Capital Secretarial Audit to reconcile the total admitted capital with National

Securities Depository Limited (NSDL) and Central Depository Services(India) Limited (CDSL) and the total issued and listed capital. This audit iscarried out every quarter and the report thereon is submitted to the ListedStock Exchanges. The audit confirms that the total Listed and Paid-upCapital is in agreement with the aggregate of the total number of shares indematerialised form (held with NSDL and CDSL) and total number of sharesin physical form.

25. Compliance Officer : Mr. Sandeep LakhotiaCompany Secretary“Vishwakarma”, 86C Topsia Road (South), Kolkata - 700 046Tel : 91-33-2285 0112/3/4Fax : 91-33-2285 7542/8501E-mail : secretarial@srei.com

107

SREI Infrastructure Finance Limited

Auditors’ Report

We have audited the attached Balance Sheet of SREI

Infrastructure Finance Limited, as at 31st March, 2005 and

the Profit and Loss Account and Cash Flow Statement for the

year ended on that date annexed thereto. 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.

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 misstatement. 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.

As required by the Companies (Auditor’s Report) Order, 2003

issued by the Central Government of India in terms of sub-

section (4A) of Section 227 of the Companies Act, 1956, we

enclose in the Annexure a statement on the matters specified

in paragraphs 4 and 5 of the said Order.

Further to our comments in the Annexure referred to above, we

report that:

(i) We have obtained all the information and explanations,

which to the best of our knowledge and belief were

necessary for the purposes of our audit;

(ii) In our opinion, proper books of account as required by law

have been kept by the Company so far as appears from our

examination of those books;

(iii) The Balance Sheet, Profit and Loss Account and Cash Flow

Statement dealt with by this report are in agreement with

the books of account;

(iv) In our opinion, the Balance Sheet, Profit and Loss Account

and Cash Flow Statement dealt with by this report comply

with the accounting standards referred to in sub-section

(3C) of Section 211 of the Companies Act, 1956;

(v) On the basis of written representations received from the

directors, as on 31st March, 2005 and taken on record by

the Board of Directors, we report that none of the directors

is disqualified as on 31st March, 2005 from being

appointed as director in terms of clause (g) of sub-section

(1) of Section 274 of the Companies Act, 1956; and

(vi) 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:

(a) in the case of the Balance Sheet, of the state of affairs

of the Company as at 31st March, 2005;

(b) in the case of the Profit and Loss Account, of the profit

for the year ended on that date; and

(c) in the case of the Cash Flow Statement, of the cash

flows for the year ended on that date.

For Deloitte Haskins & Sells

Chartered Accountants

A. Bhattacharya

Place : Kolkata Partner

Dated: 28th June, 2005 Membership No. 054110

The Members,SREI Infrastructure Finance Limited(Formerly: SREI International Finance Limited)

108

Annexure to the Auditors’ Report(Referred to in our report of even date)

(i) In respect of its fixed assets:(a) The Company has maintained proper records

showing full particulars, including quantitative detailsand situation of fixed assets.

(b) As per information and explanation given to us, thefixed assets have been physically verified by themanagement at reasonable intervals and no materialdiscrepancies were noticed on such verification.

(c) The fixed assets disposed off during the year, in ouropinion, do not constitute a substantial part of thefixed assets of the Company and such disposal, has inour opinion, not affected the going concern status ofthe Company.

(ii) In respect of shares and securities held as stock in trade:(a) As explained to us, stock in trade was physically

verified during the year by the management atreasonable intervals.

(b) In our opinion and according to the information andexplanations given to us, the procedures of physicalverification of stock in trade followed by themanagement are reasonable and adequate in relationto the size of the Company and the nature of itsbusiness.

(c) In our opinion and according to the information andexplanations given to us, the Company has maintainedproper records of stock in trade and no materialdiscrepancies were noticed on physical verification.

(iii) In respect of unsecured loan taken by the Company froma company covered in the register maintained underSection 301 of the Companies Act, 1956, according to theinformation and explanations given to us: (a) The Company has taken an unsecured loan from a

party. At the year end, the outstanding balance ofsuch loan taken aggregated to Rs. 689 lacs and themaximum amount involved during the year wasRs.689 lacs.

(b) The rate of interest and other terms and conditions ofsuch loan is, in our opinion, prima facie not prejudicialto the interest of the Company.

(c) The payment of principal amount and interest inrespect of such loan is as per stipulation.

The Company has not granted any loans, secured orunsecured to or from companies, firms or otherparties covered in the register maintained underSection 301 of the Companies Act, 1956.

(iv) In our opinion and according to the information andexplanations given to us, there are adequate internalcontrol procedures commensurate with the size of theCompany and the nature of its business for the purchaseof fixed assets and shares and securities held as stock intrade. We have not observed any continuing failure tocorrect major weaknesses in such internal controls.

(v) In respect of contracts or arrangements entered in theregister maintained in pursuance of Section 301 of theCompanies Act, 1956, to the best of our knowledge andbelief and according to the information and explanationsgiven to us:(a) The particulars of contracts or arrangements referred

to Section 301 that needed to be entered into theregister, maintained under the said section have beenso entered.

(b) Where each of such transactions (excluding loansreported under paragraph (iii) above) is in excess ofRs. 5 lacs in respect of any party, the transactionshave been made at prices which are prima-faciereasonable having regard to the prevailing marketprices at the relevant time.

(vi) In our opinion, the Company has an internal audit systemcommensurate with the size and nature of its business.

(vii) In respect of statutory dues:(a) According to the information and explanations given

to us, the Company has been generally regular indepositing undisputed statutory dues includingProvident Fund, Investor’s Education and ProtectionFund, Employees’ State Insurance, Income-tax, Sales-tax, Wealth Tax, Custom Duty, Cess and any othermaterial statutory dues with the appropriateauthorities during the year.

(b) According to the information and explanations given tous, details of disputed sales tax and income-taxdemands which have not been deposited as on 31stMarch, 2005 on account of any dispute are given below:

Name of Statute Nature of dues Amount Period to which Forum where dispute (Rs) the amount relates is pending

Income Tax Act, 1961 Income Tax 3,277,091 2001-02 Commissioner of Income Tax (Appeals) XII, New Delhi

Bengal Finance (Sales Tax) Act, 1941 Sales Tax 645,986 1994-95 Assistant Commissioner of Commercial Taxes, West Bengal

Karnataka Sales Tax Act, 1957 Sales Tax 945,000 2001-02 High Court of KarnatakaUP Trade Tax Act, 1948 Sales Tax 153,920 1995-96 Deputy Commissioner (Appeals),

Trade Tax, KanpurUP Trade Tax Act, 1948 Sales Tax 153,920 1997-98 A. C. Assessment, KanpurUP Trade Tax Act, 1948 Sales Tax 153,920 1998-99 Deputy Commissioner (Appeals),

Trade Tax, KanpurUP Trade Tax Act, 1948 Sales Tax 113,997 1999-00 A. C. Assessment, KanpurUP Trade Tax Act, 1948 Sales Tax 579,700 1997-98 The Hon’ble Member Tribunal, Trade

Tax, GhaziabadUP Trade Tax Act, 1948 Sales Tax 130,294 1996-97 The Hon’ble Member Tribunal, Trade

Tax, GhaziabadAndhra Pradesh General Sales Sales Tax 27,077 1996-97 Appellate Deputy Commissioner of Tax Act, 1957 Commercial Taxes, KurnoolIncome Tax Act, 1961 TDS u/s 192 1,867,800 2003-04 Commissioner of Income

Taxes, (Appeals) XL, KolkataIncome Tax Act, 1961 TDS u/s 194A 1,199,727 2003-04 Commissioner of Income

Taxes, (Appeals) XL, Kolkata

109

SREI Infrastructure Finance Limited

(viii) In our opinion and according to the information andexplanations given to us, the Company has not defaultedin the repayment of dues to financial institutions, banksand debenture holders.

(ix) According to the information and explanation given to us,we are of the opinion that the Company has not grantedloans and advances on the basis of security by way ofpledge of shares, debentures and other securities.

(x) Based on our examination of the records and evaluationof the related internal controls, the Company hasmaintained proper records of transactions and contractsin respect of its dealing in shares, securities, debenturesand other investments and timely entries have been madetherein. The aforesaid securities have been held by theCompany in its own name, except to the extent of theexemption granted under Section 49 of the CompaniesAct, 1956.

(xi) According to the information and explanations given tous, the Company has not given any guarantee for loanstaken by others from banks and financial institutions.

(xii) To the best of our knowledge and belief and according tothe information and explanations given to us, in ouropinion, term loans availed by the Company were, primafacie, applied by the Company during the year for thepurposes for which the loans were obtained, other thantemporary deployment pending application.

(xiii) According to the information and explanations given tous, and on an overall examination of the Balance Sheet of

the Company, funds raised on short-term basis have,prima facie, not been used during the year for long-terminvestment.

(xiv) The Company has not made any preferential allotment ofshares to parties and companies covered in the Registermaintained under Section 301 of the Act.

(xv) According to the information and explanations given to usand the records examined by us, securities/charges havebeen created in respect of the debentures issued.

(xvi) The Company has not made any public issue during theyear under review.

(xvii) To the best of our knowledge and belief and according tothe information and explanations given to us, no fraud onor by the Company was noticed or reported during theyear.

Clauses (vi), (viii), (x) and (xiii) of the Order are not applicable tothe Company.

For Deloitte Haskins & Sells Chartered Accountants

A. BhattacharyaPlace : Kolkata PartnerDated: 28th June, 2005 Membership No. 054110

110 10 lacs is equal to 1 Million

Balance Sheet As at March 31

The Schedules referred to above form an integral part of the Balance Sheet.

This is the Balance Sheet referred to in our report of even date.

For Deloitte Haskins & Sells On behalf of the BoardChartered Accountants

A. Bhattacharya M. S. Verma Hemant Kanoria Sandeep LakhotiaPartner Chairman Vice Chairman & Company Secretary

Managing Director

Place : KolkataDated : 28th June, 2005

(Rupees in Lacs)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholders’ Funds

Share Capital 1 5345 5345

Reserves and Surplus 2 11048 9123

16393 14468

Mezzanine Capital 8101 7970

Loan Funds

Secured 3 79918 60144

Unsecured 4 10534 12673

90452 72817

Deferred Tax 4782 3825

Total 119728 99080

APPLICATION OF FUNDS

Fixed Assets 5

Gross Block 2458 2192

Less: Depreciation 678 560

Net Block 1780 1632

Capital Work in Progress – 43

1780 1675

Investments 6 4950 2351

Current Assets, Loans and Advances

Current Assets 7 125696 103785

Loans & Advances 8 7150 6583

132846 110368

Less: Current Liabilities and Provisions

Liabilities 9 15774 11819

Provisions 10 4209 3706

19983 15525

Net Current Assets 112863 94843

Miscellaneous Expenditure 135 211

(To the extent not written off or adjusted)

Total 119728 99080

Significant Accounting Policies

and Notes on Financial Statements 15

11110 lacs is equal to 1 Million

SREI Infrastructure Finance Limited

Profit and Loss AccountFor the year ended March 31

The Schedules referred to above form an integral part of the Profit and Loss Account.

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

For Deloitte Haskins & Sells On behalf of the BoardChartered Accountants

A. Bhattacharya M. S. Verma Hemant Kanoria Sandeep LakhotiaPartner Chairman Vice Chairman & Company Secretary

Managing Director

Place : KolkataDated : 28th June, 2005

(Rupees in Lacs)

Schedule 2005 2004

INCOME

Income from Operations 11 12956 11533

Others 12 37 37

Total 12993 11570

EXPENDITURE

Administrative & Other Expenses 13 2632 1776

Finance Charges 14 5583 6296

Depreciation 118 112

Miscellaneous Expenditure written off 55 56

Total 8388 8240

Profit Before Bad Debts and Provisions 4605 3330

Bad Debts written off 315 269

Provisions as per the norms of Reserve Bank

of India & Foreign Financial Institutions 222 103

Provision for Premium on Mezzanine Capital 88 88

625 460

Profit Before Tax 3980 2870

Provision for Current Tax 193 177

Profit After Current Tax 3787 2693

Deferred Tax 957 649

Profit After Deferred Tax 2830 2044

Surplus brought forward from previous year 676 217

Profit Available for Appropriation 3506 2261

APPROPRIATIONS

Dividend 800 800

Corporate Dividend Tax 105 103

Special Reserve (As per Reserve Bank of India guidelines) 570 452

Bond/Debenture Redemption Reserve 80 80

General Reserve 150 150

Surplus carried to Balance Sheet 1801 676

Total 3506 2261

Earnings Per Equity Share (Rs.) 5.31 3.84

(Face Value Rs. 10/- per Share)

Significant Accounting Policies

and Notes on Financial Statements 15

112 10 lacs is equal to 1 Million

Schedules to the Balance Sheet As at March 31

Authorised40,00,00,000 Equity Shares of Rs. 10/- each 40000 10000

(Previous year 10,00,00,000 shares) 0 Preference Shares of Rs. 200/- each 0 30000

(Previous year 1,50,00,000 shares)3,00,00,000 Preference Shares of Rs. 100/- each 30000 20000

(Previous year 2,00,00,000 shares)0 Preference Shares of Rs. 50/- each 0 10000

(Previous year 2,00,00,000 shares)70000 70000

Issued and Subscribed 53767733 (Previous year 53767733) Equity Shares of Rs.10/- each 5377 5377

Paid up53294906 (Previous year 53294906) Equity Shares

of Rs.10/- each fully paid up 5330 5330Add : Forfeited Shares 15 5345 15 5345

5345 5345

(Rupees in Lacs)

2005 2004

1 SHARE CAPITAL

Term LoansDomestic Financial Institutions/Banks 14048 14787Foreign Financial Institutions 11535 17732Working Capital Facilities 45370 20902Deferred Credits 340 370Floating Rate Short Term Debenture 6000 2800Multi Option Step Up Bond – 5314.00% Secured Non Convertible Debentures – 5009.95% Foreign Guaranteed Local Currency Bonds 2625 3000

79918 60144

2005 2004

3 SECURED LOANS

A. Capital Reserves 165 – 165Total - A 165 – 165B. Revenue Reserves

I. General Reserve 2250 336 2586Securities Premium 5831 – 5831Bond/NCD Redemption Reserve 506 (106) 400Special Reserve as per Reserve Bank of India Guidelines 2077 570 2647

10664 800 114642. Surplus

Profit & Loss Account 676 1125 180111340 1925 13265

Less: Adjustment for Deferred Tax (as on 1-4-2001) 2382 – 2382Total - B 8958 1925 10883Total : A + B 9123 1925 11048

Additions/Adjustments

during the2004 year 2005

2 RESERVES AND SURPLUS

11310 lacs is equal to 1 Million

SREI Infrastructure Finance Limited

Schedules to the Balance Sheet As at March 31

(Rupees in Lacs)

2005 2004

4 UNSECURED LOANS

Public Deposits 1447 1307Commercial Paper 4500 6500Term Loans from Foreign Financial Institution 3898 4866Short Term Loans 689 –

10534 12673

Face Value Amount

2005 2004 2005 2004

6 INVESTMENTS

I. In Government/Government Guranteed Securities, Bonds & UnitsUnquoted National Saving Certificate – – 0 * 0 *Quoted14.00% Uttar Pradesh State Development Loan, 2005 27 27 32 3214.00% Haryana State Development Loan, 2005 7 7 8 814.00% Andhra Pradesh State Development Loan, 2005 2 2 2 214.00% Gujarat State Development Loan, 2005 14 14 16 1614.00% Kerala State Development Loan, 2005 3 3 4 414.00% Madhya Pradesh State Development Loan, 2005 2 2 2 214.00% Orissa State Development Loan, 2005 2 2 2 214.00% West Bengal State Development Loan, 2005 2 2 2 214.00% Damodar Valley Corporation Bonds, 2005 6 6 7 714.50% Maharashtra Jeevan Pradhikaran Bond Series - III 8 8 8 814.50% Himachal Pradesh State Forest Corporation Limited Series 2 – 2 – 217.00% Himachal Pradesh State Forest Corporation Limited, 1997 – 6 – 713.05% Government of India, 2007 8 8 10 1010.65% Andhra Pradesh Power Finance Corporation Loan, 2013 120 120 121 12112.00% Godavari Marathwada Irrigation Development Corp. Series IV 14 – 15 –

12.25% WBIDFC Bond Series IBS II 10 – 11 –

14.00% Small Industries Development Bank of India 10 – 10 –

UnitsUnit Trust of India - Unit 64 5 5 6 6Sub Total - I 256 229

Fully paid up, Long Term - At Cost

5 FIXED ASSETS

PARTICULARS GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCK

As at Addition Sales/Adj. As at Upto For Sales/Adj. Upto As at As at

March 31, during during March 31, March 31, the year during March 31, March 31, March 31,

2004 the year the year 2005 2004 the year 2005 2005 2004

Freehold Land 403 – – 403 – – – – 403 403

Buildings 740 – – 740 98 12 – 110 630 642

Furniture & Fixtures 333 68 – 401 125 20 – 145 256 208

Motor Vehicles 192 40 – 232 104 17 – 121 111 88

Machinery 524 52 1 575 233 62 – 295 280 291

Total (A) 2192 160 1 2351 560 111 – 671 1680 1632

Intangible Assets

Software – 107 – 107 – 7 – 7 100 –

Total (B) – 107 – 107 – 7 – 7 100 –

Total (A+B) 2192 267 1 2458 560 118 – 678 1780 1632

Previous year 1935 257 – 2192 448 112 – 560 1632

114 10 lacs is equal to 1 Million

Schedules to the Balance Sheet As at March 31

6 INVESTMENTS (Contd.)

II. In Subsidiary Companies - In Equity SharesUnquotedSREI Capital Markets Ltd. 10 5050000 5050000 505 505SREI Insurance Services Ltd. 10 2500000 2500000 250 250SREI Forex Ltd. 10 500000 500000 50 50SREI Venture Capital Ltd. 10 250000 250000 25 25Global Investment Trust Ltd. 10 50000 50000 5 5SREI Insurance Agency & Broking Ltd. 10 50000 50000 5 5SREI Money Mall Ltd. 10 50000 50000 5 5IIS International Infrastructure Services GmbH 1025000 25000 578 14

Euros Euros Sub-Total - II 1423 859III. In Equity Shares

i) Unquoted - TradeNew India Co-operative Bank Ltd. 10 578 578 0 * 0 *Jas Toll Road Co. Ltd. 10 16000 16000 2 2Indian Infrastructure Equipment Ltd. 10 12500000 12500000 1250 1250

1252 1252ii) Quoted - Trade

Ashok Leyland Finance Ltd. 10 – 61 – 0 *Alpic Finance Ltd. 10 100 100 0 * 0 *Birla Century Finance Ltd. 10 100 100 0 * 0 *Birla Global Finance Ltd. 10 100 100 0 * 0 *Ceat Finance Ltd. 10 – 200 – 0 *Centurion Bank Ltd. 10 100 100 0 * 0 *Cholamandalam Finance & Investment Co. Ltd. 10 100 100 0 * 0 *Essar Shipping Ltd. 10 5000 – 2 –

Goetz India Ltd. 10 2000 – 4 –

HB Estate Development Ltd. 10 – 62 – 0 *HB Portfolio Ltd. 10 62 62 0 * 0 *ICICI Bank Ltd. 10 150 150 2 2IndusInd Bank Ltd. 10 137 – 0 * –

IDBI Bank Ltd. 10 71 71 0 * 0 *Industrial Finance Corporation of India Ltd. 10 100 100 0 * 0 *Karur Vysya Bank Ltd. 10 112 112 0 * 0 *Kotak Mahindra Bank Ltd. 10 200 100 0 * 0 *Lloyds Finance Ltd. 10 150 150 0 * 0 *Lord Krishna Bank Ltd. 10 5000 5000 1 1MRF Ltd. 10 100 – 3 –

Oriental Bank of Commerce 10 100 100 0 * 0 *Reliance Capital Ltd. 10 100 100 0 * 0 *SBI Home Finance Ltd. 10 – 1200 – 0 *Shrachi Securities Ltd. 10 19750 32000 1 2Sumedha Fiscal Services Ltd. 10 72900 72900 6 6Sundaram Finance Ltd. 10 100 100 0 * 0 *Tata Finance Ltd. 10 100 100 0 * 0 *TCFC Finance Ltd. 10 – 60 – 0 *TVS Finance Ltd. 10 – 100 – 0 *VCK Capital Market Ltd. 10 100 900 0 * 0 *

19 11

Face Quantity Amount

Value (Nos.) (Nos.)

(Rs.) 2005 2004 2005 2004

(Rupees in Lacs)

11510 lacs is equal to 1 Million

SREI Infrastructure Finance Limited

Schedules to the Balance Sheet As at March 31

6 INVESTMENTS (Contd.)

iii) Quoted - Non TradeApple Industries Ltd. 10 100 100 0 * 0 *Credit Rating Information Services of India Ltd. 10 200 200 0 * 0 *New Era Urban Amenities Ltd. 10 100 100 0 * 0 *

0 * 0 *Sub-Total - III (i+ii+iii) 1271 1263IV. In Bonds/Debentures/Units

i) Quoted - TradeICICI Bank Ltd. (FCD) 400 5 5 0 * 0 *Kotak Mahindra Bank Ltd. (NCD) 45 100 100 0 * 0 *Morgan Stanley Mutual Fund 10 2000 2000 0 * 0 *Unit Trust of India 10 800 800 0 * 0 *

0 * 0 *ii) Quoted - Non Trade

ITC Hotels Limited - Part C – 25 25 0 * 0 *Sub-Total - IV (i+ii) 0 * 0 *iii) Unquoted - Trade

India Global Competitive Fund 100 2000000 – 2000 –

2000 –

TOTAL = I + II + III + IV 4950 2351Aggregate Book Value of Quoted Investment 275 240Aggregate Market Value of Quoted Investment 277 227* denotes value less than 1 Lac

Face Quantity Amount

Value (Nos.) (Nos.)

(Rs.) 2005 2004 2005 2004

2005 2004

7 CURRENT ASSETS

Assets for Hire 140784 114312Assets for Lease 49827 39197Project Finance 12789 12371Housing Finance 26 22

203426 165902Less: Securitised 84475 69083

118951 96819Stock for Trade 881 897Debtors Lease - Considered good

Exceeding six months 209 75Other Debts 205 252

Other Receivables 858 808Interest accrued but not due 226 85Cash & Bank Balances

Cash in hand 49 84With Scheduled Banks- In Unclaimed Dividend Account 24 26- In Current Account 508 2760- In Fixed Deposit Account (Under Lien) 3785 1979

125696 103785

(Rupees in Lacs)

116 10 lacs is equal to 1 Million

Schedules to the Balance Sheet As at March 31

(Unsecured, considered good)Advances recoverable in cash or in kind or for value to be received or pending adjustmentsSubsidiary companies 187 169Advance Tax 992 753Others 5971 5661

7150 6583

(Rupees in Lacs)

2005 2004

8 LOANS AND ADVANCES

Sundry Creditors 9650 4853 Security Deposits 5045 4712 Advances from Customers 145 1416 Interest accrued but not due 495 452 Amounts to be credited to Investors’ Education and Protection Fund*

Unpaid dividend 24 26 Unpaid matured deposits 98 124 Unpaid matured debentures 25 28 Interest accrued 70 50

Others 222 158 15774 11819

* There is no amount due and outstanding as at Balance Sheet date to be credited to Investors’ Education and Protection Fund.

2005 2004

9 LIABILITIES

Proposed Dividend 800 800 Provision for Dividend Tax 105 103 Provision as per the norms of Reserve Bank of India & Foreign Financial Institution 1969 1747 Provision for diminution in the value of long term investments 5 7 Provision for Premium on Mezzanine Capital 440 352 Provision for Current Taxation 890 697

4209 3706

2005 2004

10 PROVISIONS

11710 lacs is equal to 1 Million

SREI Infrastructure Finance Limited

Schedules to the Profit and Loss AccountFor the year ended March 31

Finance charges including Lease Income etc 11450 9976 Interest received on Project Finance 1119 1066 Interest received from Govt. Securities/Banks 229 232 Fee Based Income – 225 Income from Treasury/Investment Operations 158 34

12956 11533

(Rupees in Lacs)

2005 2004

11 INCOME FROM OPERATIONS

Provision for diminution in value of Long Term Investmentsno longer required written back 2 8 Dividend 2 1 Others 33 28

37 37

2005 2004

12 OTHER INCOME

On Term Loans / Working Capital Facilities 3703 4892 On Deferred Credits 51 56 On Fixed Deposits 127 113 On Bonds/Non-Convertible Debentures 1609 1021 Lease Rentals 65 39 Others 28 175

5583 6296

2005 2004

14 FINANCE CHARGES

Salaries & Allowances 939 607 Employer’s Contribution to Provident Fund 55 36 Postage, Telegram and Telephone 142 96 Legal & Professional Fees 290 188 Electricity Charges 63 50 Rent, Rates and Taxes 119 51 Brokerage and Service Charges 168 70 Auditors’ Remuneration 10 9 Repairs and Maintenance 101 82 Travelling and Conveyance 452 336 Directors’ Fees 6 3 Insurance 6 22 Printing and Stationary 71 48 Advertisement and Subscription 95 56 Loss on Sale of Securities 1 –

Other Miscellaneous Expenses 114 122 2632 1776

2005 2004

13 ADMINISTRATIVE AND OTHER EXPENSES

118

Schedules to the Balance Sheet and Profit & Loss Account

I. SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Accounting

The financial statements are prepared in accordance with Generally Accepted Accounting Principles in India, the provisions of

the Companies Act, 1956 and the guidelines issued by the Reserve Bank of India, wherever applicable.

2. Revenue Recognition

2.1 Lease / Hire Income

2.1.1 Lease income is recognised based on the Internal Rate of Return method over the period of the lease. Hire charges

in respect of hire purchase transactions are accounted under Capital Recovery Method based on internal rate of

return on an accrual basis except income relating to Non Performing Assets (NPA), which is recognised in accordance

with guidelines issued by the Reserve Bank of India.

2.1.2 Delayed payment charges and rebate allowed on timely payments are recognised as and when received/paid.

2.2 Others

All other income is accounted for on accrual basis except dividend and interest on debentures, which are accounted for as

and when received.

3. Provisions

Provisions are considered in the financial statements in compliance with the prudential norms prescribed by the Reserve Bank

of India for income recognition, asset classification, bad and doubtful debts, capital adequacy and concentration of credit/

investments. Additional provision as per the requirement of Foreign Financial Institution has also been made as follows:

4. Foreign Currency Transactions

4.1 Foreign exchange transactions are recorded at the exchange rates prevailing at the time of transaction.

4.2 Assets and liabilities expressed in foreign currencies (to the extent not covered against exchange fluctuations) are

translated into Indian Rupees at the exchange rate ruling at the Balance Sheet date and any loss or gain arising therefrom

has been considered in the Profit & Loss Account.

4.3 In respect of forward exchange contracts entered into by the Company, the difference between the forward rate and the

exchange rate on the date of the transaction are recognised as income or expense over the life of the contract.

5. Prior Period and Extra Ordinary Items

5.1 Prior Period and Extra Ordinary items having material impact on the financial affairs of the Company are disclosed.

5.2 Contingencies, which can reasonably be ascertained, are provided for if, in the opinion of the Company there is a

probability that the future outcome may have material impact on its affairs.

6. Fixed Assets and Depreciation/Amortisation

6.1 Fixed Assets are stated at their original cost of acquisition (including expenditure and interest incurred for the acquisition

and/or installation) less accumulated depreciation.

6.2 Intangible Assets expected to provide future enduring economic benefits are stated at cost less amortisation. Cost

comprises purchase price and directly attributable expenditure on making the asset ready for its intended use.

Asset Classification Arrear Period Provision as per Provision as per Foreign Provision adopted

Reserve Bank of India Financial Institution by the Company

% of Portfolio % of Portfolio % of Portfolio

Standard Less than 90 days Nil Nil Nil

91 to 180 days Nil 20 20

181 to 360 days Nil 50 50

361 to 365 days Nil 100 100

Sub-Standard 12 months to 18 months 10 100 100

Doubtful 18 months to 36 months 40 100 100

36 months to 48 months 70 100 100

Loss Above 48 months 100 100 100

15 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS

119

SREI Infrastructure Finance Limited

Schedules to the Balance Sheet and Profit & Loss Account

6.3 Depreciation on Fixed Assets has been provided on straight-line method at rates as prescribed under Schedule XIV to the

Companies Act, 1956 at the following rates:

Building 1.63%

Furniture & Fixtures 6.33%

Vehicles 9.50%

Computers 16.21%

General Plant & Machinery 4.75%

6.4 Leasehold assets are amortised over the period of lease.

6.5 Intangible assets are amortised over the best estimate of its useful life ranging upto 6 years.

7. Impairment of Fixed Assets

Wherever events or changes in circumstances indicate that the carrying value of Fixed Assets may be impaired, the Company

subjects such assets to a test of recoverability, based on discounted cash flows expected from use or disposal of such assets.

If the assets are impaired, the Company recognises an impairment loss as the difference between the carrying value and fair

value less costs to sell. None of the Company’s Fixed Assets are considered impaired as on the Balance Sheet date.

8. Capital Work in Progress

Capital work in progress is stated at cost and includes development and other expenses including interest during construction

period.

9. Investments

9.1 Investments are classified into Long Term and Current Investments.

9.2 All long-term investments including investments in subsidiary companies are valued at cost. However, provision for

diminution in the value of long term investments is made by the Company to recognise permanent decline, if any, in value

of investments individually.

9.3 Cost is arrived at on weighted average method for the purpose of valuation of investment.

10. Current Assets

10.1 Assets for hire include Hypothecation and are valued at agreement value less unmatured finance charges etc. and amount

received.

10.2 Assets for Lease are stated at Net investment amount.

10.3 Securities held as stock for trade are valued at lower of cost or market price determined category-wise.

11. Government / Semi-Government Grants

Grants in the nature of Capital Investment are treated as Capital Reserve.

12. Miscellaneous Expenditure

Miscellaneous expenditure including share issue expenditure are amortised over a period of ten years. Expenditure on issue of

bonds and debentures are amortised over their tenure.

13. Retirement and Other Benefits

13.1 The Company has Gratuity Fund covered by a scheme with Life Insurance Corporation of India and contributions to this

fund are charged to revenue.

13.2 Contribution to Provident Fund is made as per provisions of Employees Provident Fund and Miscellaneous Provisions Act,

1952 and charged to Profit and Loss Account and disclosed separately.

13.3 Liability for leave encashment is provided on the basis of the actual encashable leave outstanding at the year-end.

14. Segment Reporting

Segment information is reported in the consolidated financial statements.

15. Taxes on Income

15.1 Current tax is the amount of tax payable on the taxable income for the year determined in accordance with the provisions

of the Income Tax Act, 1961.

15.2 Deferred tax is recognised on timing differences, being the differences between the taxable income and accounting

income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax assets

15 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS (Contd.)

120

Schedules to the Balance Sheet and Profit & Loss Account

subject to the consideration of prudence are recognised and carried forward only to the extent that there is a reasonable

certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.

16. Earnings per Share

The Company reports basic and diluted earnings per equity share in accordance with Accounting Standard-20, Earnings Per

Share issued by the Institute of Chartered Accountants of India. Basic earnings per equity share have been computed by

dividing net profit after tax by the weighted average number of equity shares outstanding for the year. Diluted earning per

equity share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding

during the year.

17. Securitised Assets

17.1 All the assets securitised by the Company are derecognised from the books of accounts as per the guidance note issued

by the Institute of Chartered Accountants of India.

17.2 Income on securitised assets is spread over the tenure of servicing of securitised assets and included in finance income

under Income from Operations.

17.3 Contingent liabilities, if any, for securitised assets are disclosed separately.

2. Mezzanine Capital2.1 Unsecured Subordinated Bonds

2.1.1 The Company has allotted 52,66,075 Unsecured Subordinated Bonds to the equity shareholders in the nature ofMezzanine Capital (Tier - II) of Rs. 100 each aggregating to Rs.5266 lacs for cash at par on 25th August, 2000 onrights basis.

2.1.2 Each bond has an overall tenure of 12 years, reckoned from the date of allotment. The face value of the bonds shallbe redeemed in 7 installments at a premium of 20% of the original face value starting from 6th year on 25th August,2006 at the rate of 15% of the face value and premium thereon for 6 years and balance 10% in the year thereafter.

2.1.3 Premium payable on redemption of these Subordinated Bonds is provided over the tenure of the bond.

2.2 Detachable Warrants2.2.1 Each holder of Unsecured Subordinated Bonds is entitled to four detachable tradable warrants with an option to

apply for and be allotted one equity share of the Company against each warrant after the end of 5th year and beforecompletion of 7th year (i.e. between 25 August, 2005 to 24 August, 2007).

2.2.2 The equity shares shall be issued as per the Letter of Offer dated 16.06.2000, at an exercise price to be ascertainedat 40% less than the average of daily high and low of the prices of existing equity shares of the Company quotedat the National Stock Exchange (NSE) during six calendar months proceeding the respective determination date,rounded off to the nearest Rupee subject to a floor of par value and cap of Rs. 500/- per share.

(Rs. in Lacs)

Asset Arrear Period Book Value Provisions as at March 31, 2005 Total Provision

Classification as at March 31, As per Reserve Additional Provision as per as at March

2005 Bank of India Foreign Financial Institution 31, 2005

Standard Less than 90 days 137298 – – –

91 to 180 days 205 – 41 41

181 to 365 days 291 – 145 145

Sub Total 137794 – 186 186

Sub-Standard 12 months to 18 months 884 432 452 884

Sub Total 884 432 452 884

Doubtful 18 months to 48 months 839 660 179 839

Sub Total 839 660 179 839

Loss Above 48 months 60 60 – 60

Sub Total 60 60 – 60

Grand Total 139577 1152 817 1969

15 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS (Contd.)

II. NOTES ON FINANCIAL STATEMENTS

1. Performance wise classification of assets and total provision made thereon:

121

SREI Infrastructure Finance Limited

Schedules to the Balance Sheet and Profit & Loss Account

2.3 Unsecured Subordinated Loan2.3.1 Mezzanine Capital (Tier II) includes 5 Million Euros received during the year 2002-2003 in the form of unsecured

subordinated loan repayable in ten years period with moratorium of five years.

2.3.2 These Bonds are translated into Indian Rupees at the exchange rate ruling at the Balance Sheet date and any lossor gain arising therefrom is charged off to Profit & Loss Account. The amount of such loss during the year isamounting to Rs. 131 lacs (loss for the Previous year Rs. 182 lacs).

3. Secured Loans3.1 Working Capital facilities from banks are secured by hypothecation of assets covered by Hire Purchase/ Lease/

Hypothecation Agreements and receivables arising therefrom ranking pari passu, (excluding assets which are specificallycharged to others) and counter guarantee by the Directors in certain cases.

3.2 Term loan from Domestic and Foreign Financial Institutions are secured by hypothecation of specific assets covered byhire purchase / lease/ hypothecation agreements and receivables arising therefrom and counter guarantees from Directorsin certain cases.

3.3 Deferred payment credits are secured by hypothecation of assets covered by the related lease/hire purchase agreementand receivables arising therefrom and counter guarantees by the Directors.

3.4 9.95% Foreign Guaranteed Local Currency Bonds {AAA(SO) rated by CRISIL} allotted on 18th October, 2001 are to beredeemed in 16 equal semi annual Installments commencing from 30th month i.e 18th April, 2004 until the end of 120thmonth i.e. 18th October, 2011. The guarantee provided by Nederlandse Financierings-Maatschappij voorOntwikkelingslanden N.V. (FMO), Netherlands on the said bonds is secured by certain lease/hire purchase/ hypothecatedassets.

4. Securitisation4.1 During the year, receivables in respect of lease, hire purchase and hypothecation have been securitised to the extent of

Rs. 76858 lacs (Previous year Rs. 68899 lacs) against the purchase consideration of Rs. 65181 lacs (Previous yearRs. 62457 lacs). The Company is acting as collection agent in respect of the said securitised assets.

4.2 The net asset value derecognised as on 31st March, 2005 is Rs. 84475 lacs (Previous year Rs. 69083 lacs).

4.3 The Company has provided corporate guarantee in respect of the securitised receivables. The total amount of suchguarantee as on the Balance Sheet date is Rs. 4423 Lacs (Previous year Rs. 3735 Lacs).

5. Event after Balance Sheet DateThe Company has issued 8648500 Global Depository Receipts (GDRs) at the rate of US$ 4.05 each on 18th April, 2005aggregating to US$ 35,026,425. Each GDR represents 4 equity shares of Rs. 10 each. The GDRs are listed on the London StockExchange.

6. Security deposits amounting to Rs. 5045 lacs (Previous year Rs. 4712 lacs) received against lease agreements also includeamounts payable beyond a period of more than one year.

7. Interest income includes Rs. 30 lacs (Previous Year Rs. 22 lacs) on long term investments.

8. No amount is payable to small scale industrial undertakings as on the date of the Balance Sheet.

9. Interest from Government Securities/Banks, Leasing and Hire Purchase Income and other Income includes tax deducted atsource of Rs. 239 lacs (Previous year Rs.182 lacs).

10. The major component of deferred tax liability arising out of timing difference as on 31st March, 2005 is on account ofdepreciation on fixed assets/stock on lease.

11. Auditor s Remuneration

15 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS (Contd.)

(Rs. in Lacs)2005 2004

Audit Fees 5 4Others 4 4Reimbursement of Expenses 1 1

10 9

122

Schedules to the Balance Sheet and Profit & Loss Account

12. Managerial Remuneration

15 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS (Contd.)

(Rs. in Lacs)2005 2004

Salary (Including allowances and perquisites) 79 65Contribution to Provident Fund 6 5Commission 12 12Computation of Net Profit in accordance with Section 198 of the Companies Act, 1956 for calculation of commission payable to Managing Director:Profit before Taxation 3980 2870Add : Director s remuneration (includes Director s fees) 91 73Net Profit for the year 4071 2943Commission @ 1% of the above 41 29Restricted to 12 12

13. Contingent Liabilities

14. The future obligation towards lease rentals against certain assets taken on lease is Rs. 860 lacs (Previous year Rs. 979 lacs).

15. Details of Advances to subsidiary companies :

(Rs. in Lacs)2005 2004

13.1 Estimated Amount of Capital Contracts remaining to be executed(Net of Advances) – 9

13.2 Foreign Letter of Credit Issued by banks for acquiring assets for Lease / Hire-Purchase 3261 3657

13.3 Disputed Sales Tax Demand * 29 3013.4 Disputed Income Tax Demand * 64 25413.5 Bank Guarantee 101 1613.6 Guarantee against securitised assets 4423 3735

* Refer Annexure III

(Rs. in Lacs)Name of Subsidiary Maximum Amount Amount outstanding

Outstanding during as atthe year 31.03.2005

SREI Insurance Agency & Broking Ltd. 3 –

SREI Money Mall Ltd. 188 188SREI Insurance Services Ltd. 7 –

16. Stock for hire and for lease includes stock pending to be given on hire/lease amounting to Rs. 3451 lacs (Previous YearRs. 2085 lacs).

17. Related Party TransactionsSubsidiary Companies :SREI Forex Ltd. Global Investment Trust Ltd.SREI Capital Markets Ltd. SREI Insurance Agency & Broking Ltd.SREI Money Mall Ltd. SREI Venture Capital Ltd.SREI Insurance Services Ltd. IIS International Infrastructure Services GmbH, Germany(Formerly SREI Risk Management Services Ltd.)Bengal SREI Infrastructure Development Limited

Associate CompaniesIndian Infrastructure Equipment Limited

Key Management PersonnelName DesignationHemant Kanoria Vice Chairman & Managing DirectorPrasad Kumar Pandey Executive DirectorKishore Kumar Mohanty Executive DirectorSuneet Kumar Maheshwari Executive Director

123

SREI Infrastructure Finance Limited

Schedules to the Balance Sheet and Profit & Loss Account

Summary of Transactions with Related Parties:

15 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS (Contd.)

(Rs. in Lacs)Subsidiary / Key ManagementAssociates Personnel

2005 2004 2005 2004Sale of Assets 94 – – –Purchase of Fixed Assets 7 – – –Other Purchases (Net) 40 7 – –Other Revenue received – 225 – 0 *Interest /Finance Charges paid (Net) 68 – – –Other Expense Payments 1 1 – –Equity Contribution 564 14 – –Remuneration paid – – 97 82 Dividend Paid – – 2 2Outstanding at the year end:a) Receivable 188 169 – –b) Payable 689 – – –c) Assets given on Hire Purchase 2613 – – –

* denotes value less than 1 lac

(Rs. in Lacs)2005 2004

19.3 CIF Value of equipment imported for Lease/Hire Purchase 9502 1010519.4 Expenditure in foreign currencies:

a) Finance charges 1018 1047b) On other matters 41 25

19.5 Amount remitted in foreign currencies (including two Foreign Financial Institutions) for dividenda) Number of Non Resident Shareholders 17 18b) Number of Shares held (Equity Shares of Rs. 10/- each) 5263900 7036627c) Dividend Remitted 79 70

18. Earnings Per Share18.1 Basic Earnings per Share

18.2 Diluted Earnings per ShareNone of the potential equity shares are dilutive.

19. Additional information pursuant to the provisions of paras 3, 4C and 4D of Part II of Schedule VI to the Companies Act, 1956.19.1 Particulars in respect of closing stock of securities held in stock in trade (as per Annexure – I attached).

19.2 Schedule to the Balance Sheet as required by the Reserve Bank of India vide notification dated 29th March, 2003 (as perAnnexure – II attached).

20. The name of the Company has changed from SREI International Finance Ltd. to SREI Infrastructure Finance Ltd. with effectfrom 31st August, 2004.

21. The previous year s figures have been regrouped /rearranged, wherever considered necessary.

Particulars Equivalent No. of SharesYear ended March 31,

2005 20041 Opening No. of Shares 53294906 532949062 Total Shares outstanding 53294906 532949063 Profit after Taxes (Rs. in lacs) 2830 20444 Earnings per share (Rs.) 5.31 3.84

Signatories to Schedules 1 to 15.For Deloitte Haskins & Sells On behalf of the BoardChartered Accountants

A. Bhattacharya M. S. Verma Hemant Kanoria Sandeep LakhotiaPartner Chairman Vice Chairman & Company Secretary

Managing Director

Place : KolkataDated : 28th June, 2005

124

Annexure - I to Notes on Financial Statements

Stock in Trade as on 31st March, 2005 (Rs. in Lacs)

Name of the Company Quantity Value

Equity Shares:

Bala Techno Synthetics Ltd. 5000 1

CESC Ltd. 100 0 *

Emami Ltd. 5000 4

Hotline Glass Ltd. 889809 90

Diana Tea Company Ltd. 354700 422

India Lead Ltd. 418668 305

Jaiprakash Industries Ltd. 100 0 *

Kamala Tea Co. Ltd. 25000 11

Kanel Oil & Export Ltd. 3100 2

Kesoram Industries Ltd. 20 0 *

L. D. Textile Industries Ltd. 44850 1

La Opala Glass Ltd. 5008 2

Mega Market Share Resources Ltd. 6000 5

NEPC Agro Foods Ltd. 1333 1

Paam Pharmaceuticals Ltd. 800 1

Shanghi Polyster Ltd. 2000 1

Shentracon Chemicals Ltd. 100050 31

Shriram Asset Management Company Ltd. 15000 2

Standard Chrome Ltd. 300 0 *

Tezpur Tea Co. Ltd. 1000 1

Units:

Franklin India Prima Plus 10000 1

Total 881

* denotes value less than 1 lac

125

SREI Infrastructure Finance Limited

Annexure - II to Notes on Financial Statements

Disclosure of details as required by Para 9BB of Non Banking Financial Companies PrudentialNorms (Reserve Bank) Directions, 1998

(Rs. in Lacs)Particulars Amount Amount

Outstanding Overdue

LIABILITIES SIDE:(1) Loans and advances availed by the NBFCs inclusive of interest

accrued thereon but not paid(a) Secured Debentures /Bonds 8720 95(b) Deferred Credits 340 –

(c) Term Loans 29481 –

(d) Commercial Papers 4500 –

(e) Public Deposit 1545 98(f) Other Loans 689 –

(2) Break up of (1)(f) above (Outstanding Public Deposits inclusive of interest accrued thereon but not paid):(a) In the form of Unsecured Debentures – –

(b) In the form of partly secured Debentures ie. Debentures where there is a shortfall in the value of security – –

(c) Other public deposits – –

Particulars AmountOutstanding

ASSETS SIDE : (3) Break-up of Loans and Advances including bills receivables

[other than those included in (4) below]:Unsecured 7151

(4) Break-up of Leased Assets and Stock on Hire and Hypothecation loans counting towards EL/HP activities(i) Lease assets including lease rentals under sundry debtors :

(a) Assets on Lease 50086(b) Repossessed Assets 155

(ii) Stock on hire including hire charges under sundry debtors:(a) Assets on hire 137489(b) Repossessed Assets 3295

(iii) Project Finance 12789(iv) Total (i) + (ii) + (iii) 203814(v) Less : Securitised 84475(vi) Net (iv) - (v) 119339

(5) Break up of InvestmentsCurrent Investments(I) Quoted :

(i) Shares: Equity –

(ii) Debentures and bonds –

(iii) Units of mutual funds –

(iv) Government Securities –

(v) Others (please specify) –

(II) Unquoted: (I) Shares: Equity –

(ii) Debentures and bonds –

(iii) Units of mutual funds –

(iv) Government Securities –

(v) Others –

126

Annexure - II to Notes on Financial Statements

(Rs. in Lacs)Particulars Amount

Outstanding

Long term investments(I) Quoted:

(i) Shares: Equity 19(ii) Debentures and bonds –

(iii) Units of mutual funds 6(iv) Government Securities 250(v) Others (please specify ) –

(II) Unquoted: (i) Shares: Equity 2675(ii) Debentures, bonds / units 2000(iii) Units of mutual funds –

(iv) Government Securities –

(v) Others –

(6) Borrower group-wise classification of all leased assets, stock - on - hire and loans and advances :

(7) Investor group wise classification of all investments (current and long term) in shares and securities (both quoted andunquoted):

(Rs. in Lacs)Category Amount net

of Provisions

1. Related Parties (a) Subsidiaries –

(b) Companies in the same group –

(c) Other related parties –

2. Other than related parties 117396Total 117396

(Rs. in Lacs)

Category Market Value/ Book valueBreak up of (net of

fair value provisions)or NAV

1. Related Parties(a) Subsidiaries 1423 1423(b) Companies in the same group – –

(c) Other related parties – –

2. Other than related parties 3527 3522Total 4950 4945

(8) Other Information: (Rs. in Lacs)Particulars Amount

1. Gross Non-Performing Assets(a) Related Parties –

(b) Other than related Parties 17832. Net Non-Performing Assets

(a) Related Parties –

(b) Other than related Parties –

3. Assets acquired in satisfaction of debt –

127

SREI Infrastructure Finance Limited

Annexure - III to Notes on Financial Statements

Name of Statute Nature of dues Amount Period to which Refer Note

(Rs. in Lacs) the amount relates Below

Income Tax Act, 1961 Income Tax 33 2001-02 5

Bengal Finance (Sales Tax) Act, 1941 Sales Tax 6 1994-95 1

Karnataka Sales Tax Act, 1957 Sales Tax 9 2001-02 2

UP Trade Tax Act, 1948 Sales Tax 2 1995-96 1

UP Trade Tax Act, 1948 Sales Tax 2 1997-98 1

UP Trade Tax Act, 1948 Sales Tax 2 1998-99 1

UP Trade Tax Act, 1948 Sales Tax 1 1999-00 1

UP Trade Tax Act, 1948 Sales Tax 6 1997-98 1

UP Trade Tax Act, 1948 Sales Tax 1 1996-97 1

Andhra Pradesh General Sales Tax Act, 1957 Sales Tax 0* 1996-97 1

Income Tax Act, 1961 TDS u/s 192 19 2003-04 3

Income Tax Act, 1961 TDS u/s 194A 12 2003-04 4

* denotes value less than 1 lac

1. Tax has been paid at the point of origin but the concerned authorities have demanded tax at point of use also, which has been

contested by the Company and the management is of the opinion that such demand is not sustainable.

2. Demand raised by Sales Tax Authorities, Karnataka on repossessed assets / stock transfer are contested by the Company

before Commissioner of Commercial Taxes, (Appeals). The management is of the opinion that the demand is not sustainable.

3. Income Tax Authorities have raised demand on account of non-deduction of tax at source on House Rent Allowance and Leave

Travel Allowance paid to employees against which the Company has filed appeal.

4. Income Tax Authorities have not taken cognizance of tax exemption certificates submitted by the Company, against which

appeal has been filed by the Company.

5. Certain disallowances against which the Company has gone on appeal. The management is of the opinion that such

disallowances are not sustainable.

128

N I LAccumulated Losses

3 1 0 3

Registration No. State Code

Balance Sheet Date

I. Registration Details

INFORMATION PURSUANT TO PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956 Balance Sheet Abstract and Company s General Business Profile

II. Capital Raised during the year (Amount in Rs. Thousands)

Total Liabilities1 3 9 7 1 1 0 6

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

2 0 0 5

2 1

Net Current Assets1 1 2 8 6 1 4 2

Total Assets1 3 9 7 1 1 0 6

Public IssueN I L

Right IssueN I L

Bonus IssueN I L

Private PlacementN I L

5 5 3 5 2

Paid-up CapitalSources of Funds

5 3 4 4 6 3Secured Loans

7 9 9 1 8 7 0

Reserves and Surplus1 1 0 4 7 2 5

Unsecured Loans1 0 5 3 3 3 2

Mezzanine Capital8 1 0 0 8 8

Deferred Tax4 7 8 2 2 4

Net Fixed AssetsApplication of Funds

1 7 8 0 9 5Investments

4 9 4 9 6 3

Miscellaneous Expenditure1 3 5 0 2

IV. Performance of the Company (Amount in Rs. Thousands)

Item Code No. (ITC Code) : Not ApplicableProduct Description : Leasing

Item Code No. (ITC Code) : Not ApplicableProduct Description : Hire Purchase

Item Code No. (ITC Code) : Not ApplicableProduct Description : Infrastructure Project Finance

V. Generic Names of Three Principal Products/Services of the Company (As per monetary terms)

Turnover1 2 9 9 3 4 6

Total Expenditure

9 0 1 3 8 3

Profit before Tax [+](+ for Profit, – for Loss)

Profit after Tax [+](+ for Profit, – for Loss)

3 9 7 9 6 3 2 8 2 9 6 3Earnings per share (in Rs.)

5 . 3 1Dividend Rate (%)

1 5

Balance Sheet Abstract

On behalf of the Board

Place : Kolkata M. S. Verma Hemant Kanoria Sandeep LakhotiaDated : 28th June, 2005 Chairman Vice Chairman & Company Secretary

Managing Director

129

SREI Infrastructure Finance Limited

Cash Flow StatementFor the year ended March 31

A. Cash Flow From Operating ActivitiesNet Profit Before Tax 3,980 2,870 Adjustment for :Depreciation 118 112 Interest Expenses 5,583 6,296 Miscellaneous Expenditure written off 55 56 Dividend Income (2) (1)Loss on sale of Fixed Assets 1 –

Provision for diminution in Investments written back – –

Operating Profit before Working Capital Changes 9,735 9,333Adjustments for:(Increase) / Decrease in Receivables/Others (569) (130)(Increase) / Decrease in Lease & Hire Assets & Infrastructure Loans (22,132) (5,259)(Decrease) / Increase in Trade Payables 4,220 (3,212)Cash Generated From Operations (8,746) 732Interest Paid (5,409) (6,101)Advance Tax (239) (214)Net Cash (Used in) / Generated From Operating Activities (14,394) (5,583)

B. Cash Flow From Investing ActivitiesPurchase of Fixed Assets (224) (300)Proceeds from Sale of Fixed Assets – –

(Increase) / Decrease in Investments (2,599) 10 Dividend Received 2 1 Net Cash (Used) / Generated in Investing Activities (2,821) (289)

C. Cash Flow From Financing ActivitiesIssue of Mezzanine Capital – –

Net Increase in Borrowings 17,635 8,976 Dividend Paid (800) (533)Dividend Tax (103) (68)Net Cash (Used) / Generated in Financing Activities 16,732 8,375 Net Increase / (Decrease) in Cash & Cash Equivalents (483) 2,503 Cash & Cash Equivalents as on 01.04.2004 4,849 2,346 Cash & Cash Equivalents as on 31.03.2005 4,366 4,849

Notes:1. The above Cash Flow Satement has been prepared under the Indirect Method as set out in the Accounting Standard 3

(AS 3) ’Cash Flow Statements’ issued by the Institute of Chartered Accountants of India.

2. Previous year’s figures have been regrouped, wherever necessary to conform to the current year’s classification.

This is the Cash Flow Statement referred to in our report of even date.

(Rupees in Lacs)

2005 2004

For Deloitte Haskins & Sells On behalf of the BoardChartered Accountants

A. Bhattacharya M. S. Verma Hemant Kanoria Sandeep LakhotiaPartner Chairman Vice Chairman & Company Secretary

Managing Director

Place : KolkataDated : 28th June, 2005

130

Statement Pursuant to Section 212 of the Companies Act, 1956Relating to Subsidiary Companies

Global SREI Insurance IIS International

Name of the SREI Venture Investment SREI Capital SREI Forex Agency & SREI Insurance Infrastructure SREI Money

Subsidiary Company Capital Ltd. Trust Ltd. Markets Ltd. Ltd. Broking Ltd. Services Ltd. Services Gmbh Mall Ltd.

Accounting year of the March 31, 2005 March 31, 2005 March 31, 2005 March 31, 2005 March 31, 2005 March 31, 2005 March 31, 2005 March 31, 2005

Subsidiary Company

Shares of the

Subsidiary Company

a. Number and

Face Value 2,50,000 Equity 50,000 Equity 50,50,000 Equity 5,00,000 Equity 50,000 Equity 25,00,000 Equity 15,00,000 Euro 50,000 Equity

Shares of Shares of Shares of Shares of Shares of Shares of Shares of

Rs. 10/- each Rs. 10/- each Rs. 10/- each Rs.10/- each Rs.10/- each Rs.10/- each Rs.10/- each

fully paid up fully paid up fully paid up fully paid up fully paid up fully paid up fully paid up

b. Extent of holding 100% 100% 100% 100% 100% 100% 68% 100%

Net Aggregate amount

of Profit/(Loss) of the

Subsidiary Company

so far as it concerns

the members of

SREI Infrastructure

Finance Limited.

a. Not dealt with in

the Account of

SREI Infrastructure

Finance Limited for

the year ended

March 31, 2005

i for the Subsidiary’s

financial year ended

March 31, 2005 Rs 40,54,153 Rs 1,71,242 Rs 11,14,990 Rs 1,54,527 Rs (61,517) Rs (7,51,335) Euro 2,406 Rs (50,76,845)

ii for the previous

financial years of the

Subsidiary since it

became the

Holding Company’s

Subsidiary Rs. 4,29,747 Rs. 12,774 Rs. 51,51,975 Rs. 8,13,145 Rs. 3,96,295 Rs. 46,165 Euro (6,325) Rs. (27,33,350)

b. Dealt with in the

Account of SREI

Infrastructure Finance

Limited for the year

ended March 31, 2005

i. for the Subsidiary’s

financial year ended

March 31, 2005 Rs. Nil Rs. Nil Rs. Nil Rs. Nil Rs. Nil Rs. Nil N.A. Rs. Nil

ii for the previous

financial years of the

Subsidiary since it

became the Holding

Company’s Subsidiary Rs. Nil Rs. Nil Rs. Nil Rs. Nil Rs. Nil Rs. Nil N.A Rs. Nil

On behalf of the Board

Place : Kolkata M. S. Verma Hemant Kanoria Sandeep LakhotiaDated : 28th June, 2005 Chairman Vice Chairman & Company Secretary

Managing Director

131

SREI Forex Limited

The Board of Directors of your Company have pleasure inpresenting the Fourth Annual Report together with the AuditedAccounts of your Company for the year ended 31st March, 2005.

FINANCIAL RESULTS AND OPERATIONS(Rs. in Lacs)

Year ended Year ended31st March, 31st March,

2005 2004

Income 5733.61 6601.84Expenditure 5731.67 6594.80Profit Before Tax 1.94 7.04Provision for Current Tax 0.11 1.49Profit After Current Tax 1.83 5.55Deferred Tax 0.29 0.69Profit After Tax carried forward to next year 1.54 4.85

The year under review commenced on cautious optimism in theMoney Market on account of the change of Government at theCentre, and resultant delay in the presentation of the UnionBudget. This led to a period of uncertainty, reflecting volatility in thestock and foreign exchange bourses. The common minimumprogramme took centre stage and the process of major reformagenda were re-defined. On the tourism and travel related area, theOpen Skies policy was delayed and hence outbound foreign traveland its travel related business, including money changing, wereimpacted. Your Company therefore, took a calculated andpragmatic approach to stimulate cost effective operation and tominimise the risk of foreign exchange fluctuation, using this periodto realign relationships with its principals in regard to forexinstruments, and to re-engineer and consolidate branch operations,with a view to counter prevalent conditions, and act as a catalystfor increased business opportunities in the future.

Your Company entered into a strategic alliances to market WorldMoney Cards with enhanced features in U.S. Dollars, U.K. Poundsand Euros, and redefined its strategy to increase revenue from feebased business. Inward Money Transfer Services and revenueearning from inbound foreign tourists gained momentum. Duringthe year, private banks actively entered the retail foreign exchangemarket and while there is increased competition, they have alsoserved to expand the market size of money changing business.

Despite the unfavourable market trend during part of the year, yourCompany was able to post a turnover of Rs. 57,16,37,502/- andprofit after tax of Rs. 1,54,527/-. With the Government s emphasison acceleration of its reform agenda, and the thrust being initiatedby the Civil Aviation Ministry, particularly in the tourism andhospitality sector, including the liberalisation of aviation sector inthe F.Y. 2005–06, it is anticipated that these measures willstimulate travel related & the money changing business. YourCompany is geared to take advantage of the opportunities tosubstantially improve its business performance in the next financialyear.

DIVIDENDThe Board of Directors do not recommend any dividend for thisyear.

PARTICULARS OF EMPLOYEESNone of the employees of your Company are in receipt ofremuneration requiring disclosures pursuant to the provisions ofSection 217(2A) of the Companies Act, 1956 read with theCompanies (Particulars of Employees) Rules, 1975 as amended,hence no such particulars are annexed.

PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTFLOWYour Company has no activity relating to Conservation of Energyand Technology Absorption as stipulated in the Companies(Disclosure of Particulars in the Report of Board of Directors) Rules,1988.

During the year under review, the total foreign exchange earningsof your Company was Rs. 51,683/- (Previous year Rs. 78,505/-) andforeign exchange outflow was NIL (Previous year Rs. 74,725/-).

DIRECTORSMr. D. K. Vyas and Mr. Arun Kedia were appointed as AdditionalDirectors of your Company with effect from 8th November, 2004while Mr. Suneet K. Maheshwari was appointed as AdditionalDirector of your Company with effect from 25th May, 2005. Interms of Article 89 of the Articles of Association of your Company,Mr. D. K. Vyas, Mr. Arun Kedia and Mr. Suneet K. Maheshwari willhold the offices as Additional Directors upto the date of theensuing Annual General Meeting. The Company has receivednotices in writing under Section 257 of the Companies Act, 1956from members of the Company proposing the appointment of Mr.D. K. Vyas, Mr. Arun Kedia and Mr. Suneet K. Maheshwari asDirectors in the ensuing Annual General Meeting.

In accordance with the provisions of the Companies Act, 1956 andArticle 100 of the Articles of Association of your Company, Mr. P.K. Ghosh, Managing Director, retires at the ensuing Annual GeneralMeeting as a Director and being eligible, offers himself for re-appointment. Your Board of Directors have re-appointed Mr. P. K.Ghosh as Managing Director subject to the approval of themembers of the Company for a period of one year with effect from1st May, 2005.

Mr. K. C. Jain and Mr. K. K. Mohanty, Directors resigned from theDirectorship of the Company w.e.f. 8th November, 2004 and 25thMay, 2005 respectively. The Board places on record itsappreciation of the valuable services rendered by them during theirtenures with your Company.

SECRETERIAL COMPLIANCE CERTIFICATEPursuant to the proviso to Section 383A of the Companies Act,1956, a certificate from a Secretary in Wholetime Practice inrespect of compliance by your company with all the provisions ofCompanies Act, 1956 is attached to this report.

DIRECTORS AUDITORS COMPANY SECRETARYMr. P. K. Ghosh - Managing Director Lodha & Co. Mr. Pradeep K. AgarwalMr. Suneet K. Maheshwari Chartered AccountantsMr. D. K. VyasMr. Arun Kedia

Directors ReportDear Shareholders,

132

Auditors Report

DIRECTORS RESPONSIBILTY STATEMENTIn terms of provisions of Section 217(2AA) of the Companies Act,1956 (Act), your directors confirm:

(i) that in the preparation of the annual accounts for the financialyear ended 31st March, 2005, the applicable accountingstandards have been followed along with proper explanationrelating to material departures;

(ii) that the Directors have selected such accounting policies andapplied them consistently and made judgments and estimatesthat are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company at the end of thefinancial year and of the profit or loss of the Company for theyear;

(iii) that the Directors have taken proper and sufficient care for themaintenance of adequate accounting records in accordancewith the provisions of this Act for safeguarding the assets ofthe Company and for preventing and detecting fraud and otherirregularities; and

(iv) that the Directors have prepared the annual accounts for thefinancial year ended 31st March, 2005 on a going concern

basis.

AUDITORSM/s. Lodha & Co., Chartered Accountants retire as Auditors of yourCompany at the conclusion of the ensuing Annual General Meetingand have confirmed their eligibility and willingness to accept theoffice of Auditors, if re-appointed.

ACKNOWLEDGEMENTYour Directors wish to place on record their grateful appreciationfor the excellent support and co-operation received from ReserveBank of India, American Express Bank Limited, other Bankers andClients. Your Directors also wish to place on record their deepappreciation of the contribution made by employees at all levels,who through their competence, hard work and support haveenabled your Company to achieve better performance and lookforward to their continued support in the future as well.

On behalf of the Board of Directors

Place : Kolkata Arun Kedia P. K. GhoshDated: 25th May, 2005 Director Managing Director

We have audited the attached Balance Sheet of SREI ForexLimited as at 31st March, 2005, and the Profit and Loss accountalong with cash flow statement for the year ended on that dateannexed thereto. These financial statements are the responsibilityof the Company s management. Our responsibility is to express anopinion on these financial statements based on our audit.

We conducted our audit in accordance with the auditing standardsgenerally accepted in India. Those Standards require that we planand perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for our opinion.

A. As required by the Companies (Auditor s Report) (Amendment)Order, 2004 issued by the Central Government of India in termsof sub-section (4A) of Section 227 of the Companies Act, 1956and in terms of the information and explanations given to usand also on the basis of such checks as we consideredappropriate, we further state that:

i. The Company has maintained proper records showing fullparticulars including quantitative details and situation ofits fixed assets.

According to the information and explanations given tous, the fixed assets have been physically verified by themanagement during the year. No material discrepancieswere noted on such verification.

The Company has not disposed off substantial part offixed assets during the year, which could affect the goingconcern status of the Company.

ii. The stocks of foreign currencies and travellers chequesof the Company have been physically verified during the

year by the management at regular intervals.

In our opinion and according to the information andexplanations given to us the procedures of physicalverification of stocks of foreign currencies and travellerscheques to the extent followed by the management arereasonable and adequate in relation to the size of theCompany and the nature of its business.

On the basis of our examination and according to theinformation and explanations given to us, we are of theopinion that the Company is maintaining proper recordsof foreign currencies and traveller s cheques. And nosuch discrepancies were noticed on verification betweenthe physical stocks and the book records.

iii. As informed to us, the Company has not taken /given anyunsecured loan to/ from companies, firms or other partiescovered in the register maintained under Section 301 ofthe Companies Act, 1956. Accordingly, Para 4(iii) of theCompanies (Auditors Report) (Amendment) Order, 2004is not applicable.

iv. In our opinion and according to the information andexplanations given to us, there are adequate internalcontrol procedures commensurate with the size of theCompany and nature of its business for the purchase offoreign currencies and traveller s cheques, fixed assetsand for the sale of currencies and traveller s cheques.During the course of our audit, we have neither comeacross nor have we been informed of any instances ofany major weaknesses in the internal control.

v. According to the information and explanations providedby the management, there were no transactions thatneed to be entered into a register in pursuance of Section301 of the Companies Act 1956. Accordingly, Para 5(v) ofthe Companies (Auditors Report) (Amendment) Order,2004 is not applicable.

To The Members,

133

vi. The Company has not accepted any deposits within themeaning of the Section 58A, 58AA or any other relevantprovision of the Companies Act, 1956 and rules framedthere under.

vii. In our opinion, the Company has an in house internalaudit system commensurate with the size of theCompany and the nature of its business.

viii. As informed, the Central Government has not prescribedmaintenance of cost records under clause {d} of subsection {1} of Section 209 of the Act for the product ofthe Company.

ix. According to the information and explanations given tous, the Company is generally regular in depositing withappropriate authorities undisputed statutory duesincluding Provident Fund, Investor Education andProtection Fund, Employees State Insurance, Income-Tax, Sales-Tax, Wealth-Tax, Service Tax, Custom Duty,Excise Duty, Cess and other material statutory dues asapplicable to it.

According to the information and explanations given tous, no undisputed dues payable in respect of ProvidentFund, Investor Education and Protection fund, EmployeesState Insurance, Income Tax, Wealth Tax, Service Tax,Sales Tax, Customs Duty, Excise Duty and Cess wereoutstanding, as at 31st March, 2005 for a period of morethan six months from the date they became payable.

According to the information and explanation given to us,there were no dues of Sales Tax, Income Tax, CustomDuty, Wealth Tax, Service Tax, Excise Duty and Cess thathave not been deposited with appropriate authorities onaccount of any dispute.

x. The Company does not have any accumulated losses asat the end of the financial year and the Company has notincurred any cash losses during the financial year coveredby our audit and the immediately preceding financial year.

xi. In our opinion and according to the information andexplanations given to us, the Company has not defaultedin repayment of dues to financial institutions and bank.There were no debenture holders at any time during theyear.

xii. According to the information and explanations given andbased on the documents and records produced to us, theCompany has not granted loans and advances on thebasis of security by way of pledge of shares, debenturesand other securities.

xiii. The Company is not a chit fund or a nidhi mutual benefitfund/society. Accordingly, the provisions of the clause4{xiii} a to d of the Companies {Auditor s Report}Amendment Order, 2004 are not applicable to theCompany.

xiv. According to the information and explanations given tous, the Company is not dealing in or trading in shares,securities, debentures and other investment. Accordinglythe provisions of the clause 4{xiv} of the Companies{Auditor s Report} Amendment, Order, 2004 are notapplicable to the Company.

xv. According to the information and explanation given to us,the Company has not obtained and / or availed any termloan during the year.

xvi. According to the information and explanation given to us,

the Company has not given any guarantees for loanstaken by others from bank or financial institutions.

xvii. According to the information and explanation given to us,the Company has not availed any term loans during thecurrent financial year.

xviii. According to the information and explanations given to usand on an overall examination of the balance sheet of theCompany, no short term fund have been used for longterm investments.

xix. The Company has not made any preferential allotment ofshares to parties and companies covered in the registermaintained under Section 301 of the Companies Act,1956.

xx. The Company has not raised money by public issueduring the year.

xxi. During the course of our examination of the books ofaccount carried out in accordance with generallyaccepted auditing practices in India, we have neithercome across any incidence of fraud on or by theCompany nor have been informed of any such case bythe management.

B. Further to the above, we report that:

(i) We have obtained all the information and explanations,which to the best of our knowledge and belief werenecessary for the purposes of our audit.

(ii) In our opinion, proper books of account as required by lawhave been kept by the Company so far as appears from ourexamination of the books of accounts.

(iii) The Balance Sheet, Profit and Loss Account and Cash FlowStatement dealt with by this report are in agreement withthe books of account.

(iv) In our opinion, the Balance Sheet, Profit and Loss Accountand Cash Flow Statement dealt with by this report complywith the Accounting Standards referred to in sub-section(3C) of Section 211 of the Companies Act, 1956.

(v) On the basis of the written representations received fromthe directors and taken on record by the Board of Directors,we report none of the directors is disqualified as on 31stMarch, 2005 from being appointed as a director in terms ofSection 274 (1) (g) of the Companies Act, 1956.

(vi) In our opinion and to the best of our information andaccording to the explanations given to us, the saidaccounts read together with other notes thereon, give theinformation required by the Companies Act, 1956, in themanner so required and give a true and fair view inconformity with the accounting principles generallyaccepted in India:

(a) in the case of the Balance Sheet, of the state of affairsof the Company as at 31st March, 2005;

(b) in the case of the Profit and Loss Account, of the profitfor the year ended on that date; and

(c) in the case of the Cash Flow statement, of the cashflows for the year ended on that date.

For Lodha & Co.Chartered Accountants

H. K. VermaPlace : Kolkata PartnerDated : 25th May, 2005 Membership No. 55104

SREI Forex Limited

134

I have examined the registers, records, books and papers of SREIForex Limited (the Company) as required to be maintained underthe Companies Act, 1956, (the Act) and the rules made thereunderand also the provisions contained in the Memorandum and Articlesof Association of the Company for the financial year ended on 31stMarch, 2005 (financial year). In my opinion and to the best of myinformation and according to the examinations carried out by meand explanations furnished to me by the Company, its officers andagents, I certify that in respect of the aforesaid financial year: -

1. The Company has kept and maintained all registers as statedin Annexure A to this certificate, as per the provisions and therules made thereunder and all entries therein have been dulyrecorded.

2. The Company has duly filed the forms and returns as stated inAnnexure B to this certificate, with the Registrar ofCompanies within the time prescribed under the Act and therules made thereunder. No forms and returns were filed withRegional Director, Central Government, Company Law Boardor other authorities.

3. The Company, being a public limited company, has theminimum prescribed paid up capital and other comments arenot required as they are applicable to a private limitedcompany.

4. The Board of Directors of the Company duly met 04 (four)times respectively on 31.05.2004, 30.07.2004, 08.11.204 and24.01.2005 in respect of which meetings proper notices weregiven and the proceedings were properly recorded and signedin the Minutes Book maintained for the purpose. No circularresolutions were passed.

5. The Company has not closed its Register of Members duringthe financial year.

6. The Annual General Meeting for the financial year ended on31.03.2004 was held on 30.07.2004 after giving due notice tothe members of the Company and the resolutions passedthereat were duly recorded in Minutes Book maintained forthe purpose.

7. One Extra-ordinary General Meeting was held (on 09.11.2004)during the financial year, after giving due notice to themembers of the Company and the resolutions passed thereatwere duly recorded in the Minutes Book maintained for thepurpose.

8. The Company has not advanced any loans to its directors orpersons or firms or companies referred to under Section 295of the Act.

9. The Company has not entered into any contracts falling withinthe purview of Section 297 of the Act.

10. The Company has made necessary entries in the Registermaintained under Section 301 of the Act.

11. As there were no instances falling within the purview ofSection 314 of the Act, the Company has not obtained anyapprovals from the Board of Directors, members or CentralGovernment in this regard.

12. The Company has not issued any duplicate share certificatesduring the financial year.

13. The Company:

(i) has not made any allotment, transfer or transmission ofsecurities during the financial year.

(ii) has not deposited any amount in a separate Bank Account,as no dividend was declared during the financial year;

(iii) was not required to pay/ post warrants to any member ofthe Company, as no dividend was declared during thefinancial year;

(iv) was not required to transfer any amount to InvestorEducation and Protection, Fund;

(v) has duly complied with the requirements of Section 217 ofthe Act.

14. The Board of Directors of the Company is duly constituted.Mr. Devendra Kr. Vyas and Mr. Arun Kr. Kedia were appointedas additional directors w.e.f 08.11.2004. Mr. Kailash Ch. Jainresigned from the Directorship of the Company w.e.f.08.11.2004. There was no appointment of alternate directorsand directors to fill casual vacancy in the Board during thefinancial year.

15. The Company has not appointed any Managing Director/Whole-time Director/ Manager during the financial year. Theremuneration of Mr. Prithwish Kr. Ghosh, Managing Directorwas revised during the financial year in accordance with theconsent of the members of the Company obtained at theExtra-ordinary General Meeting held on 09.11.2004.

16. The Company has not appointed any sole-selling agentsduring the financial year.

17. The Company was not required to obtain any approvals of theCentral Government, Company Law Board, Regional Directorand / or such authorities prescribed under the variousprovisions of the Act during the financial year.

18. The Directors have disclosed their interest in otherfirms/companies to the Board of Directors pursuant to theprovisions of the Act and the rules made thereunder.

19. The Company has not issued any shares, debentures or othersecurities during the financial year.

20. The Company has not bought back any shares during thefinancial year.

21. There was no redemption of preference shares or debenturesduring the financial year.

22. There were no transactions necessitating the Company tokeep in abeyance the rights to dividend, rights shares andbonus shares pending registration of transfer of shares.

23. The Company has not invited/ accepted any deposits,including unsecured loan falling within the purview of Section58A of the Act during the financial year.

24. The Company has not made any borrowings during thefinancial year, in violation of the provisions of Section 293(1)(d)of the Act.

Compliance CertificateRegistration No. : 21-93780

CIN No. : U 74999 WB 2001 PLC 93780

Date of incorporation : 26.09.2001

Date of obtaining certificate of commencement of business : 23.04.2002

Authorised Share Capital : Rs.50 Lacs

Paid up Share Capital : Rs.50 Lacs

To The Members,

SREI Forex Limited

135

SREI Forex Limited

25. The Company has not made any loans or advances or givenguarantees or provided securities to other bodies corporate,where applicable, in violation of the provisions of the Act.

26. The Company has not altered the provisions of theMemorandum with respect to situation of the Company sregistered office from one State to another during the yearunder scrutiny.

27. The Company has not altered the provisions of theMemorandum with respect to the objects of the Companyduring the year under scrutiny.

28. The Company has not altered the provisions of theMemorandum with respect to name of the Company duringthe year under scrutiny.

29. The Company has not altered the provisions of theMemorandum with respect to share capital of the Companyduring the year under scrutiny.

30. The Company has not altered its Articles of Association duringthe financial year.

31. I have been given to understand by the management thatthere was/ were no prosecution initiated against or showcause notices received by the Company and no fines orpenalties or any other punishment was imposed on theCompany during the financial year, for offences under the Act.

32. The Company has not received any money as security from itsemployees during the financial year.

33. The Company has deposited both employee s and employer scontribution to Provident Fund with prescribed authoritiespursuant to Section 418 of the Act.

Deepak Kumar KhaitanPlace : Kolkata A.C.S. No.: 16860Dated : 25th May, 2005 C.P.No: 5207

Annexure A

Sl.No. Particulars Under Section

(a) Register of Members 150(b) Index of Members 151(c) Minutes Book of Meetings of Board of Directors 193(d) Minutes Book of Meetings of Shareholders 193(e) Register of particulars of contracts in which directors are interested 301(f) Register of Directors, Managing Director, Manager and Secretary 303(g) Register of Directors’ shareholdings 307(h) Application and Allotment Register

Annexure BForms and Returns as filed by the Company with the Registrar of Companies, during the financial year ended on 31st March,2005: -

S.N. Form No./Return Filed Under For Date of filing Whether filed If delay in filing Section within prescribed whether requisite

Time additional fee paidYES/NO YES/NO

01. Balance Sheet etc. 220 Year ended 31.03.2004 26.08.2004 Yes N.A.(AGM held on 30.07.2004).

02. Annual Return 159 AGM held on 30.07.2004. 23.08.2004 Yes N.A.

03. Form 32 303(2) For appointment of 15.11.2004 Yes N.A.Mr. Devendra Kr. Vyas and Mr. Arun Kr. Kedia as additional directors w.e.f. 08.11.2004 and resignation of Mr. Kailash Ch. Jain w.e.f. 08.11.2004.

04. Form 29 (Two Forms) 264(2) Consents of Mr. Devendra 15.11.2004 Yes N.A.266(1)(a) Kr. Vyas and Mr. Arun Kr. Kedia

266(1)(b)(iii) to act as the directors of the Company.

05. Form 23 192 Registration of Special 10.12.2004 Yes N.A.Resolution passed at the Extra-ordinary General Meeting held on 09.11.2004 regarding the consent of the members of the Company for revision of remuneration of Managing Director.

06. Form 25C 269(2) & Intimation about the revision 10.12.2004 Yes N.A.Schedule XIII of remuneration of Managing

Director.

Registers and Records as maintained by the Company

136

Balance Sheet As at March 31

The Schedules referred to above form an integral part of the Balance Sheet.

This is the Balance Sheet referred to in our report of even date.

For Lodha & Co. On behalf of the BoardChartered Accountants

H. K. Verma P. K. Ghosh Arun Kedia P. K. AgarwalPartner Managing Director Director Company Secretary &Membership No. 55104 Chief Manager (Finance)

Place : KolkataDated : 25th May, 2005

(Amount in Rupees)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholders’ Funds

Share Capital 1 50,00,000 50,00,000

Reserves and Surplus

Profit and Loss Account 9,67,672 8,13,145

Deferred Tax Liability 1,46,164 1,17,535

Total 61,13,836 59,30,680

APPLICATION OF FUNDS

Fixed Assets 2

Gross Block 7,80,476 6,58,626

Less: Depreciation 2,49,732 1,36,347

Net Block 5,30,744 5,22,279

Investments 3 15,00,327 15,00,175

Current Assets,Loans and Advances

Current Assets 4 81,00,859 1,18,57,319

Loans & Advances 5 6,01,586 3,60,777

87,02,445 1,22,18,096

Less: Current Liabilities & Provisions

Liabilities 6 43,97,432 81,09,490

Provisions 7 2,99,873 2,89,095

46,97,305 83,98,585

Net Current Assets 40,05,140 38,19,511

Miscellaneous Expenditure 77,625 88,715

(To the extent not written off or adjusted)

Total 61,13,836 59,30,680

Significant Accounting Policies and Notes on

Financial Statements 10

137

Profit and Loss AccountFor the year ended March 31

The Schedules referred to above form an integral part of the Profit and Loss Account.

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

For Lodha & Co. On behalf of the BoardChartered Accountants

H. K. Verma P. K. Ghosh Arun Kedia P. K. AgarwalPartner Managing Director Director Company Secretary &Membership No. 55104 Chief Manager (Finance)

Place : KolkataDated : 25th May, 2005

(Amount in Rupees)

Schedule 2005 2004

INCOME

Sale of Currencies & Travellers’ Cheques 57,16,37,502 66,05,24,122

Increase / (Decrease) in Stock 1,33,583 (12,18,459)

Other Income 8 15,89,735 8,78,094

Total 57,33,60,820 66,01,83,757

EXPENDITURE

Purchase of Currencies & Travellers’ Cheques 56,29,93,388 64,93,11,205

Administrative & Other Expenses 9 1,00,49,023 1,00,78,888

Interest – –

Depreciation 1,13,385 78,920

Miscellaneous Expenditure written off 11,090 11,090

Total 57,31,66,886 65,94,80,103

Profit Before Tax 1,93,934 7,03,654

Provision for Current Tax 10,778 1,48,910

Profit After Current Tax 1,83,156 5,54,744

Deferred Tax 28,629 69,270

Profit After Deferred Tax 1,54,527 4,85,474

Surplus brought forward from previous year 8,13,145 3,27,671

Surplus carried to Balance Sheet 9,67,672 8,13,145

Significant Accounting Policies and Notes on

Financial Statements 10

SREI Forex Limited

138

Schedules to the Balance Sheet As at March 31

Authorised5,00,000 (Previous Year 5,00,000) Equity Shares of Rs. 10 each 50,00,000 50,00,000Issued, Subscribed and Paid Up Capital5,00,000 (Previous Year 5,00,000) Equity Shares of Rs. 10 each fully paid up 50,00,000 50,00,000

Note: The entire Share Capital is held by SREI Infrastructure Finance Limited, the Holding Co. and its nominees.

(Amount in Rupees)

2005 2004

1 SHARE CAPITAL

Current InvestmentsTrade, UnquotedMutual Funds143845 Units of JM High Liquidity Fund 15,00,327 –(134606 Units of Tata Liquid Fund Daily Dividend) – 15,00,175

15,00,327 15,00,175Aggregate NAV of above Investments 15,00,327 15,00,175

2005 2004

3 INVESTMENTS

(Unsecured,considered good)Advances (recoverable in cash or in kind or for value to be received or pending adjustments) 1,95,552 1,77,601 Advance Income Tax (including tax deducted at source) 4,00,034 1,77,176 Security Deposits 6,000 6,000

6,01,586 3,60,777

2005 2004

5 LOANS AND ADVANCES

Stock of Currencies & Travellers’ Cheques 9,23,368 7,89,785 Debtors - (Unsecured, considered good)

Exceeding six months 16,83,809 26,04,347 Other Debts 21,88,046 31,30,264

Cash & Bank BalancesCash in hand 9,21,526 3,23,072 With Scheduled Banks- In Current Accounts 2,86,542 30,09,851 - In Fixed Deposit 20,97,568 20,00,000

81,00,859 1,18,57,319

2005 2004

4 CURRENT ASSETS

2 FIXED ASSETS

PARTICULARS GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCK

As at Addition As at As at For the As at As at As at31st March, during the 31st March, 31st March, year 31st March, 31st March, 31st March,

2004 year 2005 2004 2005 2005 2004Computers 3,13,775 48,965 3,62,740 95,750 51,207 1,46,957 2,15,783 2,18,025 Office Equipments 91,000 5,385 96,385 16,087 9,297 25,384 71,001 74,913 Furniture & Fixtures 2,400 2,400 2,399 – 2,399 1 1 Intangible Assets 2,51,451 67,500 3,18,951 22,111 52,881 74,992 2,43,959 2,29,340 (Accounting Package - Xchange)Total 6,58,626 1,21,850 7,80,476 1,36,347 1,13,385 2,49,732 5,30,744 5,22,279 Previous year – 2,88,651 3,69,975 57,427 78,920 1,36,347 5,22,279

139

Schedules to the Balance Sheet As at March 31

Schedules to the Profit and Loss AccountFor the year ended March 31

(Amount in Rupees)

2005 2004

6 LIABILITIES

Sundry Creditors 34,59,377 73,18,581 Advances from Customers 1,86,480 –

Others 7,51,575 7,90,909 43,97,432 81,09,490

2005 2004

7 PROVISIONS

Provision for Income Tax 2,99,873 2,89,095 2,99,873 2,89,095

2005 2004

8 OTHER INCOME

Interest (TDS Rs. 25,754, Previous Year Rs. 20,734) 4,67,442 1,16,838 Commission & Incentive (TDS Rs. 59,528, Previous Year Rs. 501) 4,61,974 3,66,893 Bad Debt recovered 3,95,210 2,55,352 Dividend from Mutual Funds 84,088 95,485 Liabilities no longer required written back 1,23,420 –

Miscellaneous Income 57,601 43,526 15,89,735 8,78,094

2005 2004

9 ADMINISTRATIVE AND OTHER EXPENSES

Salaries, Allowances & Bonus 44,58,094 39,58,923 Employer’s Contribution to Provident Fund 2,99,766 2,42,802 Office Administrative Expenses 46,214 37,329 Bank Charges 74,940 1,00,880 Postage, Telegram & Telephone 4,63,889 3,45,958 Professional Fees 3,10,576 99,375 Electricity Charges 3,05,260 6,56,010 Rent, Rates & Taxes 18,607 59,147 Brokerage & Commission 24,37,943 28,83,468 Auditors’ Remuneration 35,000 35,000 Repairs & Maintenance - Others 43,548 23,965 Travelling & Conveyance 13,14,343 12,44,221 Directors’ Fees 16,000 16,000 Printing & Stationery 1,38,324 85,187 Miscellaneous Expenses 86,519 2,90,623

1,00,49,023 1,00,78,888

SREI Forex Limited

140

Schedules to the Balance Sheet and Profit & Loss Account

I. SIGNIFICANT ACCOUNTING POLICIES

1) General

Financial statements are prepared under the historical cost convention and in accordance with the Generally Accepted

Accounting Principles as acceptable in India and are on the basis of a going concern.

2) Revenue Recognition

Sale and purchase of foreign currencies, travellers’ cheques & commission thereon and all other income and expenses are

accounted for on accrual basis.

3) Fixed Assets & Depreciation

i) Fixed Assets are stated at their original cost of acquisition less accumulated depreciation till date.

ii) Depreciation on Fixed Assets has been provided on Straight Line Method at the rates and the manner prescribed under

Schedule XIV to the Companies Act, 1956.

4) Impairment

Fixed assets are reviewed at each balance sheet date for impairment. In case events and circumstances indicate any

impairment, recoverable amount of fixed asset is determined. An impairment loss is recognised, wherever the carrying

amount of assets either belonging to Cash Generating Unit or otherwise exceeds recoverable amount. The recoverable

amount is the greater of assets net selling price or its value in use. In assessing the value in use, the estimated future cash

flow from the use of assets is discounted to their present value at appropriate rate. An impairment loss is reversed if there

has been change in the recoverable amount and such loss no longer exists or has deceased. Impairment loss/reversal

thereof is adjusted to the carrying value of the respective asset, which in case of Cash Generating Unit, are allocated to

assets on a prorata basis.

5) Investments

Long term Investments are valued ’at cost’. Provision for diminution in the value of Long Term Investments is made by the

Company to recognise permanent decline, if any, in value of Investments individually. Current Investments are valued at

lower of cost or market price determined on category of Investments.

6) Stocks

Stock of Currencies, Travellers’ Cheques & VTM Cards are valued at lower of cost or market price and are certified by the

Management.

7) Foreign Exchange Transaction

Transaction in foreign currencies are accounted for at the exchange rate prevailing on the date of the transaction. Foreign

currency monetary assets and liabilities at the year end are translated using closing exchange rates. The loss or gain

thereon and also on the exchange differences on settlement of the foreign currency transaction during the year are

recognised as income or expenses and are adjusted to the profit and loss account under respective heads of accounts.

8) Miscellaneous Expenditure

Miscellaneous Expenditure to the extent not written off are amortised over a period of ten years from the year in which the

same was incurred.

9) Retirement and Other Benefits

9.1 Contribution to Provident Fund is made as per provisions of Employees Provident Fund and Miscellaneous Provisions

Act,1952 and charged to Profit & Loss account.

9.2 Liability for leave encashment is provided on the basis of the actual encashable leave outstanding at the year end.

10) Tax on Income

Current tax is determined as the amount of tax payable in respect of taxable income for the year using applicable tax rates

and tax laws. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or

substantively enacted by the Balance Sheet date. Tax effect of timing differences for the current year are included in the

Profit & Loss Account as a part of expense and deferred tax liability/asset, as the case may be, in the Balance Sheet.

11) Provision, Contingent Liabilities and Contingent Assets

Provision involving substantial degree of estimates in measurement are recognised when there is a present obligation as

a result of past events and it is probable that there will be an outflow of resources. Contingent assets are neither recognised

nor disclosed in the financial statement. Contingent liabilities, if any, are disclosed by way of notes to the accounts.

10 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS

141

Schedules to the Balance Sheet and Profit & Loss Account

II. NOTES ON ACCOUNTS1) Sales of Currencies & Travellers’ Cheques include commission on Travellers’ Cheques Rs. 193,775 (Previous year

Rs. 638,026).

2) No amount is payable to small scale industrial undertaking as on the date of the Balance Sheet.

3) The Fixed Deposit Certificates have been pledged with UTI Bank Ltd, Kolkata against Overdraft facility.

4) The Company has temporarily discontinued the operation at Chennai Branch since November 2004.

5) In accordance with Accounting Standard - 22 "Accounting for Taxes on Income" issued by the Institute of CharteredAccountants of India, the Company has accounted for deferred tax asset/liability during the year.The components ofDeferred tax asset/(liability) as on 31st March, 2005 are as follows:

Particulars (Amount in Rupees)Depreciation (1,34,229)Preliminary Expenses (11,935)Total (1,46,164)

6) Auditor’s Remuneration2005 2004

Audit Fees 25,000 25,000Others 10,000 10,000

7) Managing Director’s Remuneration

Salary & Allowances 7,02,109 5,03,401Contribution to P. F. 43,200 36,000

8) Related Party TransactionsThe Company has the following related parties :

Holding Company SREI Infrastructure Finance Limited

Fellow Subsidiaries SREI Capital Markets LimitedSREI Money Mall LimitedSREI Insurance Services LimitedSREI Insurance Agency and Broking LimitedSREI Venture Capital LimitedGlobal Investment Trust LimitedIIS International Infrastructure Services GmbHBengal SREI Infrastructure Development Ltd.

Key Management Personnel Mr. P. K. Ghosh, Managing Director

Summary of transactions with related parties : (Amount in Rupees)Holding Fellow Key Management

Particulars Company Subsidiaries Personnel

Purchase of Currencies 2,80,965 (–)

Sale of Currencies 43,03,233(7,26,489)

Security Deposit taken back –

(5,00,000) *Remuneration paid 7,45,309

(5,39,401)Outstanding at the year end 28,261 Nil Nil

(82,200) (–) (–)

* SREI Money Mall Limited Figures in bracket pertain to previous year.

9) Guarantees and collaterals issued on behalf of/ by the Company - Rs. Nil (Previous period - Rs. Nil).

10 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS (Contd.)

(Amount in Rupees)

(Amount in Rupees)

SREI Forex Limited

142

Schedules to the Balance Sheet and Profit & Loss Account

10. Earnings per Share :

Particulars 2005 2004

Profit after taxation (Rs.) 1,54,527 4,85,474

Weighted average number of Equity Shares outstanding during the year 5,00,000 5,00,000

Basic & Diluted Earnings Per Share (in Rs.) 0.31 0.97

11. Additional information pursuant to the provisions of paras 3, 4C and 4D of part II of Schedule VI to the Companies

Act, 1956:

11.1 Particulars in respect of Purchase, Sales and Closing Stock of Money Changing Operation:

(Amount in Rupees)

Particulars Opening Stock Purchase Sale Closing Stock

Currency Notes 7,77,020 30,21,89,098 30,74,36,868 9,23,368

(19,44,493) (29,83,05,988) (30,38,97,183) (7,77,020)

Travellers’ Cheques & VTM Card 12,765 26,08,04,290 26,42,00,634 –

(63,751) (35,10,05,217) (35,66,26,939) (12,765)

Total 7,89,785 56,29,93,388 57,16,37,502 9,23,368

(20,08,244) (64,93,11,205) (66,05,24,122) (7,89,785)

Figures in bracket pertains to previous year.

11.2 Expenditure in Foreign Currencies :

2005 2004

Travelling Expenses – 74,725

11.3 Earnings in Foreign exchange :

Incentives 51,683 78,505

12. The previous year’s figures have been regrouped/rearranged, wherever considered necessary.

10 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS (Contd.)

Signatories to Schedules 1 to 10.

As per our report of even date attached.

For Lodha & Co. On behalf of the BoardChartered Accountants

H. K. Verma P. K. Ghosh Arun Kedia P. K. AgarwalPartner Managing Director Director Company Secretary &Membership No. 55104 Chief Manager (Finance)

Place : KolkataDated : 25th May, 2005

(Amount in Rupees)

143

For Lodha & Co. On behalf of the BoardChartered Accountants

H. K. Verma P. K. Ghosh Arun Kedia P. K. AgarwalPartner Managing Director Director Company Secretary &Membership No. 55104 Chief Manager (Finance)

Place : KolkataDated : 25th May, 2005

3 1 0 3

Registration No. State Code

Balance Sheet Date

I. Registration Details

INFORMATION PURSUANT TO PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956Balance Sheet Abstract and Company s General Business Profile

II. Capital Raised during the year (Amount in Rs. Thousands)

Total Liabilities1 0 8 1 1

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

2 0 0 5

2 1

Net Current Assets4 0 0 5

Total Assets1 0 8 1 1

9 3 7 8 0

Paid-up CapitalSources of Funds

5 0 0 0

Secured LoansN I L

Reserves and Surplus9 6 8

Unsecured LoansN I L

Accumulated LossesN I L

Right IssueN I L

Public IssueN I L

Private PlacementN I L

Bonus IssueN I L

Deferred Tax Liability1 4 6

Net Fixed AssetsApplication of Funds

5 3 1Investments

1 5 0 0

Miscellaneous Expenditure7 8

IV. Performance of the Company (Amount in Rs. Thousands)

Item Code No. (ITC Code) Not ApplicableProduct Description Full Fledged Money Changer

Item Code No. (ITC Code) NilProduct Description Nil

Item Code No. (ITC Code) NilProduct Description Nil

V. Generic Names of Three Principal Products/Services of the Company (As per monetary terms)

Turnover (Incl. Other Income)5 7 3 3 6 1

Total Expenditure

5 7 3 1 6 7

Profit before Tax [+](+ for Profit, – for Loss)

1 9 4

Profit after Tax [+](+ for Profit, – for Loss)

1 5 5Earnings per share (in Rs.)

0 . 3 1Dividend Rate (%)

N I L

Balance Sheet Abstract

SREI Forex Limited

144

Cash Flow StatementFor the year ended March 31

A. Cash Flow From Operating ActivitiesNet Profit before Taxes & Extraordinary items 1,93,934 7,03,654 Add : Adjustments for :

Depreciation/Amortisation 1,13,385 78,920 Preliminary Expenses written off 11,090 11,090 Interest Paid – –

Bad Debts written off – –

Less: Adjustments forProfit on sale of Investments – –

Dividend received (84,088) (95,485)Interest received (4,67,442) (1,16,838)

Operating Profit before Working Capital changes (2,33,121) 5,81,341 Adjustments for :

(Increase)/Decrease in Stock in Trade (1,33,583) 12,18,459 (Increase)/Decrease in Trade & Other Receivables 18,44,805 (31,64,807)Miscellaneous Expenditure – –

Increase/(Decrease) in Trade Payables and other liabilities (37,12,059) 4,32,495 Cash Generated From Operations (22,33,958) (9,32,512)Less: Direct Taxes paid (2,22,857) (1,62,130)Cash Flow before Extraordinary Item (24,56,815) (10,94,642)Extraordinary Item – –

Net Cash Flow From Operating Activities (24,56,815) (10,94,642)B. Cash Flow From Investing Activities

Purchase of Fixed Assets (1,21,850) (2,88,651)Dividend received 84,088 95,485 Interest received 4,67,442 1,16,838 Sale/(Purchase) of Investments (152) (15,00,175)Net Cash used in Investing Activities 4,29,528 (15,76,503)

C. Cash Flow From Financing ActivitiesShare Application money received – –

Interest paid – –

Net Cash Flow From Financing Activities – –

Net Increase/(Decrease) in Cash & Cash Equivalents (A+B+C) (20,27,287) (26,71,145)Cash and Cash Equivalents as on 01.04.2004 (Op. Balance) 53,32,923 80,04,068 Cash and Cash Equivalents as on 31.03.2005 (Cl. Balance) 33,05,636 53,32,923

Notes:Cash and Cash equivalents represents Cash in hand and Balances with Banks.

(Amount in Rupees)

2005 2004

As per our report of even date attached.

For Lodha & Co. On behalf of the BoardChartered Accountants

H. K. Verma P. K. Ghosh Arun Kedia P. K. AgarwalPartner Managing Director Director Company Secretary &Membership No. 55104 Chief Manager (Finance)

Place : KolkataDated : 25th May, 2005

145

Directors Report

Your Directors have pleasure in presenting the Sixth Annual Reporttogether with the Audited Accounts of your Company for the yearended 31st March, 2005. The summarised financial performance ofyour Company is as under:

FINANCIAL RESULTS AND OPERATIONS(Rs. in Lacs)

Year ended Year ended31st March, 31st March,

2005 2004

Income 108.60 515.64

Expenditure 92.14 488.91

Profit Before Tax 16.46 26.73

Profit After Current Tax 8.84 18.09

Provision for Deferred Tax (2.31) 1.04

Profit available for appropriation 11.15 17.05

Add: Brought forward from last year 51.52 34.47

Balance carried to Balance Sheet 62.67 51.52

REVIEW OF OPERATIONS & FUTURE PROSPECTSDuring the year, your Company s total income was lower than thelast year. This was primarily because in the last year your Companygot substantial fees from a single client, which enabled it to post amuch higher turnover. During the year under review, your Companyreduced costs, increased its market presence and has a healthyorder book position. But since assignments are in execution phase,fees realisation would be in the subsequent years.

During the period, your Company successfully executed fourdisinvestment assignments on behalf of IDCOL, Government ofOrissa. Your Company also played an advisory role in the creationof a Private equity fund & successfully syndicated Rs. 220 croresfor this fund. Your Company is also assisting in the sale of assetsof 5 assisted Units of WBIDC. Your Company has also beenworking on assignments to raise funds for number of its clientsthrough public issues.

In view of the above, your Company is confident of increasing itsmarket presence and achieving better results in the years to come.

DIVIDENDWith a view to conserve the resources, the Directors do notpropose any dividend for the year ending 31st March, 2005.

SUBSIDIARY COMPANYDuring the year, your Company entered into a Joint Ventureagreement with West Bengal Industrial Development CorporationLimited (WBIDC), the nodal industrial body of the Government ofWest Bengal, & formed a subsidiary company in the name & styleof Bengal SREI Infrastructure Development Limited . This wouldgive a greater focus to project development activity. Your Companyholds 51% of the total equity in this subsidiary company while the

balance 49% is held by WBIDC. As the first accounts of thissubsidiary company will be prepared on 31st March, 2006, itsaudited accounts will be consolidated with the accounts of yourCompany from the next financial year only.

FIXED DEPOSITYour Company has not accepted any fixed deposits during the yearunder review.

AUDIT COMMITTEEAs required under Section 292A of the Companies Act, 1956, theAudit Committee of the Company comprises of Mr. V. H. Pandya,Mr. Hemant Kanoria and Mr. K. M. Lal.

PARTICULARS OF EMPLOYEESNone of the employees of your Company are in receipt ofremuneration requiring disclosures pursuant to the provisions ofSection 217(2A) of the Companies Act, 1956 read with theCompanies (Particulars of Employees) Rules, 1975, as amended,hence no such particulars are annexed.

PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTFLOWSince your Company is not a manufacturing unit, requirements asto Conservation of Energy and Technology Absorption are notapplicable. However, your Company continues its endeavour toimprove energy conservation and utilisation, safety andenvironment.

Your Company has not utilized or earned any foreign exchangeduring the year under review.

DIRECTORSMr. S. Krishna Kumar & Mr. Subrata Ghosh were appointed asAdditional Directors of your Company with effect from 30th July,2004 & 9th May, 2005 respectively. However, in terms of Article 87(b)of the Articles of Association of your Company, they will hold officeas Additional Directors up to the date of the ensuing Annual GeneralMeeting. Your Company has received individual notices underSection 257 of the Companies Act, 1956 from members signifyingtheir intention to move resolution for appointment of Mr. S. KrishnaKumar & Mr. Subrata Ghosh as Directors of your Company.

Mr. Subrata Ghosh was also appointed as Wholetime Director(Executive Director) of your Company with effect from 9th May,2005 subject to the approval of members in the ensuing AnnualGeneral Meeting.

Term of Mr. Jadav Lal Mukherjee as Wholetime Director (ExecutiveDirector) expired on 31st March, 2005. Further, he tendered hisresignation as Director of your Company, which was accepted bythe Board of Directors in their meeting held on 9th May, 2005.

In accordance with the provisions of the Companies Act, 1956 andthe Articles of Association of your Company, Mr. K. M. Lal, Director

Dear Shareholders,

DIRECTORS AUDITORS COMPANY SECRETARYMr. V. H. Pandya - Chairman Deloitte Haskins & Sells Mr. Manoj AgarwalMr. Hemant Kanoria Chartered AccountantsMr. S. Krishna KumarMr. K. M. LalMr. Subrata Ghosh - Executive Director

SREI Capital Markets Limited

146

Auditors Report

of the Company retires by rotation in the ensuing Annual GeneralMeeting and being eligible, offer himself for re-appointment.

DIRECTORS RESPONSIBILITY STATEMENTIn terms of provisions of Section 217(2AA) of the Companies Act,1956 (Act), your directors confirm:(i) that in the preparation of the annual accounts for the year

ended 31st March, 2005, the applicable accounting standardshave been followed along with proper explanation relating tomaterial departures;

(ii) that the directors have selected such accounting policies andapplied them consistently and made judgments and estimatesthat are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company at the end of theyear and of the profit or loss of the Company for that year;

(iii) that the directors have taken proper and sufficient care for themaintenance of adequate accounting records in accordancewith the provisions of this Act for safeguarding the assets ofthe Company and for preventing and detecting fraud and otherirregularities; and

(iv) that the directors have prepared the annual accounts for the

year ended 31st March, 2005 on a going concern basis.

AUDITORSM/s. Deloitte Haskins & Sells, Chartered Accountants retire asAuditors of your Company at the conclusion of the ensuing AnnualGeneral Meeting and have confirmed their eligibility andwillingness to accept the office of Auditors, if re-appointed.

ACKNOWLEDGEMENTYour Directors wish to place on record their grateful appreciationfor the excellent support and co-operation received from theSecurities & Exchange Board of India (SEBI), Bankers, Investors andClients. Your Directors also wish to place on record their deepappreciation of the contribution made by the employees andconsultants, who through their competence, hard work andsupport have enabled your Company to achieve betterperformance and look forward to their continued support in thefuture as well.

On behalf of the Board of Directors

Place : Kolkata V. H. PandyaDated : 21st June, 2005 Chairman

We have audited the attached Balance Sheet of SREI CapitalMarkets Limited, as at 31st March, 2005 and the Profit and Loss

Account and Cash Flow Statement for the year ended on that date

annexed thereto. 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.

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

misstatement. 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.

As required by the Companies (Auditor s Report) Order, 2003

issued by the Central Government of India in terms of sub-section

(4A) of Section 227 of the Companies Act, 1956, we enclose in the

Annexure a statement on the matters specified in paragraphs 4 and

5 of the said Order.

Further to our comments in the Annexure referred to above, we

report that:

(i) We have obtained all the information and explanations, which

to the best of our knowledge and belief were necessary for the

purposes of our audit;

(ii) In our opinion, proper books of account as required by law have

been kept by the Company so far as appears from our

examination of those books;

(iii) The Balance Sheet, Profit and Loss Account and Cash Flow

Statement dealt with by this report are in agreement with the

books of account;

(iv) In our opinion, the Balance Sheet, Profit and Loss Account and

Cash Flow Statement dealt with by this report comply with the

accounting standards referred to in sub-section (3C) of Section

211 of the Companies Act, 1956;

(v) On the basis of representations received from the directors and

taken on record by the Board of Directors, we report that none

of the directors are disqualified as on 31st March, 2005 from

being appointed as director in terms of clause (g) of sub-

section (1) of Section 274 of the Companies Act, 1956; and

(vi) 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:

(a) in the case of the Balance Sheet, of the state of affairs of

the Company as at 31st March, 2005;

(b) in the case of the Profit and Loss Account, of the profit for

the year ended on that date; and

(c) in the case of the Cash Flow Statement, of the cash flows

for the year ended on that date.

For Deloitte Haskins & SellsChartered Accountants

A. BhattacharyaPlace : Kolkata Partner

Dated : 21st June, 2005 Membership No. 054110

To The Members,

147

(Referred to in our report of even date)

Annexure to the Auditors Report

(i) In respect of its fixed assets:

(a) The Company has maintained proper records showing full

particulars, including quantitative details and situation of

fixed assets.

(b) As per information and explanation given to us the fixed

assets have been physically verified by the management

at reasonable intervals and no material discrepancies were

noticed on such verification.

(c) There was no disposal of fixed assets during the year.

(ii) In respect of shares and securities held as stock in trade:

(a) As explained to us, stock in trade was physically verified

during the year by the management at reasonable

intervals.

(b) In our opinion and according to the information and

explanations given to us, the procedures of physical

verification of stock in trade followed by the management

are reasonable and adequate in relation to the size of the

Company and the nature of its business.

(c) According to the information and explanations given to us,

the Company is maintaining proper records of stock in

trade and no material discrepancies were noticed on

physical verification.

(iii) The Company has not granted or taken any loans, secured or

unsecured to/from companies, firms or other parties covered

in the register maintained under Section 301 of the Act.

(iv) In our opinion and according to the information and

explanations given to us, there are adequate internal control

procedures commensurate with the size of the Company and

the nature of its business for the purchase of fixed assets and

we have not observed any continuing failure to correct major

weaknesses in such internal controls.

(v) There were no transactions during the year that need to be

entered into a register in pursuance of Section 301.

(vi) The Company has not accepted deposits from the public

within the provisions of Sections 58A and 58AA of the

Companies Act, 1956 and the Companies (Acceptance of

Deposits) Rules, 1975.

(vii) In our opinion, the Company has an internal audit system

commensurate with the size and nature of its business.

(viii) In respect of statutory dues:

(a) According to the information and explanations given to us,

the Company has been regular in depositing undisputed

statutory dues including Provident Fund, Income-tax,

Service Tax and any other material statutory dues with the

appropriate authorities during the year.

(b) According to the information and explanations given to us,

there were no disputed statutory dues, which have not

been deposited as on 31st March, 2005.

(ix) The Company does not have any dues to financial

institutions, banks or debenture holders.

(x) In our opinion, the Company has not granted loans and

advances on the basis of security by way of pledge of shares,

debentures and other securities.

(xi) Based on our examination of the records and evaluation of

the related internal controls, the Company has maintained

proper records of transactions and contracts in respect of its

dealing in shares, securities, debentures and other

investments and timely entries have been made therein. The

aforesaid securities have been held by the Company in its

own name, except to the extent of the exemption granted

under Section 49 of the Companies Act, 1956.

(xii) According to the information and explanations given to us,

the Company has not given any guarantee for loans taken by

others from banks and financial institutions.

(xiii) To the best of our knowledge and belief and according to the

information and explanations given to us, the Company has

not taken any term loan during the year.

(xiv) According to the information and explanations given to us,

and on an overall examination of the balance sheet of the

Company, funds raised on short-term basis have, prima facie,

not been used during the year for long-term investment.

(xv) The Company has not made any preferential allotment of

shares to parties and companies covered in the Register

maintained under Section 301 of the Act.

(xvi) The Company has not raised any money by way of public

issues during the year under review.

(xvii) To the best of our knowledge and belief and according to the

information and explanations given to us, no fraud on or by

the Company was noticed or reported during the year.

(xviii) Clauses (viii), (x), (xiii) and (xix) of the Order are not applicable

to the Company.

For Deloitte Haskins & SellsChartered Accountants

A. BhattacharyaPlace : Kolkata Partner

Dated : 21st June, 2005 Membership No. 054110

SREI Capital Markets Limited

148

Balance Sheet As at March, 31

The Schedules referred to above form an integral part of the Balance Sheet.

This is the Balance Sheet referred to in our report of even date.

For Deloitte Haskins & Sells On behalf of the Board

Chartered Accountants

A. Bhattacharya V. H. Pandya Subrata Ghosh Manoj Agarwal

Partner Chairman Executive Director Company Secretary

Place : Kolkata

Dated: 21st June, 2005

(Amount in Rupees)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholders’ Fund

Share Capital 1 5,05,00,000 5,05,00,000

Reserves & Surplus 2 62,66,965 5,67,66,965 51,51,975 5,56,51,975

Deferred Tax 11,04,583 13,35,774

5,78,71,548 5,69,87,749

APPLICATION OF FUNDS

Fixed Assets 3

Gross Block 75,57,020 75,57,020

Less: Depreciation 31,46,697 21,01,785

Net Block 44,10,323 54,55,235

Investments 4 1,94,78,712 1,92,28,712

Current Assets, Loans & Advances

Current Assets 5 34,32,091 1,60,53,861

Loans & Advances 6 4,40,75,016 2,97,51,107

4,75,07,107 4,58,04,968

Less: Current Liabilities & Provisions

Current Liabilities 7 1,12,75,091 1,20,23,939

Provisions 8 23,01,599 15,46,754

1,35,76,690 1,35,70,693

Net Current Assets 3,39,30,417 3,22,34,275

Miscellaneous Expenditure 9 52,096 69,527

(To the extent not written off or adjusted)

5,78,71,548 5,69,87,749

Significant Accounting Policies & Notes on Accounts 13

149

Profit and Loss AccountFor the year ended March, 31

The Schedules referred to above form an integral part of the Profit & Loss Account.

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

For Deloitte Haskins & Sells On behalf of the Board

Chartered Accountants

A. Bhattacharya V. H. Pandya Subrata Ghosh Manoj Agarwal

Partner Chairman Executive Director Company Secretary

Place : Kolkata

Dated: 21st June, 2005

(Amount in Rupees)

Schedule 2005 2004

INCOME

Income from operations 10 1,08,48,086 5,14,40,844

Other Income 11 12,127 1,23,428

1,08,60,213 5,15,64,272

EXPENDITURE

Administrative & Other Expenses 12 81,51,719 4,78,25,544

Depreciation 10,44,912 10,47,810

Miscellaneous Expenditure written off 17,431 17,431

92,14,062 4,88,90,785

Profit Before Tax 16,46,151 26,73,487

Provision for Current Taxation 762,352 8,64,437

Profit After Current Taxation 8,83,799 18,09,050

Deferred Tax (231,191) 1,03,828

Profit After Tax 11,14,990 17,05,222

Balance brought forward from last year 51,51,975 34,46,753

Profit Available for Appropriations 62,66,965 51,51,975

Earnings per Equity Share (Re.) 0.22 0.34

Significant Accounting Policies & Notes on Accounts 13

SREI Capital Markets Limited

150

Schedules to the Balance Sheet As at March, 31

Authorised

52,50,000 Equity Shares of Rs.10/- each 5,25,00,000 5,25,00,000

Issued, Subscribed & Paid-up

50,50,000 (Previous Year 50,50,000) Equity Shares of Rs.10/- each 5,05,00,000 5,05,00,000

fully paid-up in cash

5,05,00,000 5,05,00,000

Note : The entire Share Capital is held by SREI Infrastructure Finance Ltd., the Holding Co. and its nominees.

(Amount in Rupees)

2005 2004

1 SHARE CAPITAL

Profit & Loss Account 62,66,965 51,51,975

62,66,965 51,51,975

2005 2004

2 RESERVES & SURPLUS

Particulars Face Value Quantity (Nos.) Amount (Rs.)(Rs.) 31.03.2005 31.03.2004 31.03.2005 31.03.2004

In Equity SharesI) In Subsidiary Companies - In Equity Shares

Unquoted (Non Trade)Bengal SREI Infrastructure Development Limited 10 25,000 – 2,50,000 –

2,50,000 –

II) Unquoted (Non Trade)Feedback Ventures Private Limited 10 6,82,696 6,82,696 1,91,15,488 1,91,15,488

1,91,15,488 1,91,15,488III) Quoted (Non Trade)

Andhra Bank Limited 10 100 100 1,000 1,000Bank of Baroda Limited 10 100 100 7,220 7,220Bank of India Limited 10 100 100 1,590 1,590Corporation Bank Limited 10 100 100 12,875 12,875HDFC Bank Limited 10 100 100 25,622 25,622ICICI Bank Limited 10 100 100 18,605 18,605IDBI Bank Limited 10 171 171 3,922 3,922Oriental Bank of Commerce Limited 10 100 100 4,110 4,110State Bank of India Limited 10 100 100 25,915 25,915ING Vysya Bank Limited 10 100 100 12,365 12,365Total 1,13,224 1,13,224

Total 1,94,78,712 1,92,28,712Aggregate Book value of Quoted Investment 1,13,224 1,13,224Aggregate Market value of Quoted Investment 2,96,636 2,78,160

4 INVESTMENTS

3 FIXED ASSETS

PARTICULARS GROSS BLOCK DEPRECIATION NET BLOCK

As at Addition during As at Upto For the As at As at As at31.03.2004 the year 31.03.2005 31.03.2004 year 31.03.2005 31.03.2005 31.03.2004

Office Equipment 4,52,357 – 4,52,357 73,704 21,339 95,043 3,57,314 3,78,653

Furniture & Fittings 7,55,610 – 7,55,610 1,63,681 47,615 2,11,296 5,44,314 5,91,929

Computers 55,55,860 – 55,55,860 17,37,022 9,00,605 26,37,627 29,18,233 38,18,838

Motor Car & Vehicles 7,93,193 – 7,93,193 1,27,378 75,353 2,02,731 5,90,462 6,65,815

Total 75,57,020 – 75,57,020 21,01,785 10,44,912 31,46,697 44,10,323 54,55,235

Previous Period 75,57,020 – 75,57,020 10,53,975 10,47,810 21,01,785 54,55,235

Fully Paid up, Long Term - at cost

151

Schedules to the Balance Sheet As at March, 31

Sundry Debtors

(Unsecured, Considered good)

- Debts outstanding for a period exceeding six months 18,00,000 45,23,875

- Other debts 15,90,923 40,80,000

Cash In Hand 41,168 57,957

Balances with Scheduled Banks

- In Current Account – 73,92,028

34,32,091 1,60,53,861

2005 2004

5 CURRENT ASSETS

(Unsecured, Considered good)

Advances recoverable in cash or in kind or for value to be received or

pending adjustments

Tax Deducted at Source 49,24,636 41,40,727

Others 3,91,50,380 2,56,10,380

4,40,75,016 2,97,51,107

2005 2004

6 LOANS & ADVANCES

Sundry Creditors 5,11,791 5,45,594

Advance from Customer 5,00,000 –

Security Deposit 89,50,000 89,50,000

Other Current Liabilities 1,53,838 25,28,345

Balances with Scheduled Banks

- Book Overdraft 11,59,462 –

1,12,75,091 1,20,23,939

2005 2004

7 CURRENT LIABILITIES

Income Tax 23,01,599 15,39,247

Provision for Diminution in value of Long Term Investments – 7,507

23,01,599 15,46,754

2005 2004

8 PROVISIONS

(To the extent not written off or adjusted)

Preliminary Expenses 52,096 69,527

52,096 69,527

2005 2004

9 MISCELLANEOUS EXPENDITURE

(Amount in Rupees)

SREI Capital Markets Limited

152

Schedules to the Profit & Loss AccountFor the year ended March, 31

Arrangers Fees 41,95,961 5,14,40,844

Consultancy Services 62,77,125 –

Lead Manager’s Fees 3,75,000 –

1,08,48,086 5,14,40,844

2005 2004

10 INCOME FROM OPERATIONS

(Amount in Rupees)

Dividend Received 4,620 5,405

Other Income 7,507 200

Interest Received – 1,17,823

12,127 1,23,428

2005 2004

11 OTHER INCOME

Salary & Allowances 20,92,794 74,93,377

Employer’s Contribution to Provident Fund 1,80,646 1,00,134

Travelling & Conveyance 8,30,816 33,88,176

Car Running Expenses 7,12,979 12,31,948

Telephone Expenses 1,12,135 8,98,195

Professional Fees 30,61,650 2,75,27,666

Electricity Charges 1,71,616 1,85,136

Printing & Stationary 5,920 85,812

Directors’ Sitting Fees 72,000 35,000

Advertisement & Subscription 53,655 4,92,061

Payment to Auditors

- Audit Fees 25,000 16,200

- Certification Charge 14,480 39,480 7,020 23,220

Rent, Rates & Taxes 1,97,593 3,89,326

Repairs & Maintenance 4,36,236 4,41,762

Business Development Expenses 31,101 27,564

Hire Charges 58,395 74,983

Increase/Decrease in Stock – 50,00,000

Other Miscellaneous Expenses 94,703 4,31,184

81,51,719 4,78,25,544

2005 2004

12 ADMINISTRATIVE & OTHER EXPENSES

153

Schedules to the Balance Sheet and Profit & Loss AccountFor the year ended March 31, 2005

13 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS

A. SIGNIFICANT ACCOUNTING POLICIES1. Basis of Accounting

The financial statements are prepared in accordance with generally accepted accounting principles in India and theprovisions of the Companies Act, 1956. The Company follows the accrual method of accounting under historical costconvention.

2. Fixed Assets2.1 Fixed Assets are stated at their original cost of acquisition less accumulated depreciation.

2.2 Depreciation on Fixed Assets has been provided on straight–line method at rates prescribed under Schedule XIV to theCompanies Act, 1956.

3. Investments3.1 Investments are classified into Long Term and Current investments.

3.2 All long-term investments are valued at cost . However, provision for diminution in the value of long term investmentsis made by the Company to recognise permanent decline, if any, in value of investments individually.

3.3 Cost is arrived at on weighted average method for the purpose of valuation of investment.

4. Miscellaneous ExpenditurePreliminary expenses are being amortised over a period of ten years.

5. Revenue Recognition All incomes are accounted for on accrual basis except for dividend, which are accounted for as and when received.

6. Employee Benefits Liability for leave encashment is provided on the basis of the actual encashable leave outstanding at the year end.

7. Tax on Income7.1 Current Tax is the amount of tax payable on the taxable income for the year determined in accordance with the

provisions of the Income Tax Act, 1961.

7.2 Deferred Tax is recognised on timing difference, being the difference between the taxable income and accountingincome that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax assetssubject to the consideration of prudence are recognised and carried forward only to the extent that there is a reasonablecertainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.

B. NOTES ON ACCOUNTS1. During the year, the Company has formed a subsidiary, Bengal SREI Infrastructure Development Limited, a 51% joint

venture with West Bengal Industrial Development Corporation Limited, by investing Rs. 2,50,000 in the share capital of suchcompany.

2. Arranger fee, consultancy services and other income include tax deducted at source of Rs. 7,83,909/- (Previous YearRs. 29,70,788/-).

3. Director s Remuneration (Amount in Rupees)

2005 2004

Salary & Other Allowances 8,19,272 7,10,451

Contribution to Provident Fund 57,600 47,520

4. Related Party Transactions

Holding Company Subsidiary Companies

SREI Infrastructure Finance Limited Bengal SREI Infrastructure Development Limited

Fellow Subsidiaries

SREI Insurance Services Limited SREI Venture Capital Limited

SREI Forex Limited Global Investment Trust Limited

SREI Money Mall Limited IIS International Infrastructure Services Gmbh

SREI Insurance Agency & Broking Limited

SREI Capital Markets Limited

154

Key Management Personnel

Mr. J. L. Mukherjee, Executive Director

Subsidiaries Fellow Subsidiaries Key ManagementPersonnel

Security Deposit Received NIL

(89,50,000)

Security Deposit Paid 25,00,000

(NIL)

Outstanding at the Year end – Security Deposit Received 89,50,000

(89,50,000)

Outstanding at the Year end – Security Deposit Paid 25,00,000

(NIL)

Equity Contribution 2,50,000

(NIL)

Remuneration Paid 8,76,872

(7,57,971)

Figures in brackets denote the amount for Previous Year

5. The Company does not have any dues to small-scale industrial undertakings as on the Balance Sheet date.

6. The major component of Deferred Tax for the year is due to depreciation effect.

7. Earnings per Share

7.1 Basic Earnings per Share

Equivalent No. of Shares

Particulars Year ended March 31

2005 2004

1. Opening No. of Shares 50,50,000 50,50,000

2. Total Shares outstanding 50,50,000 50,50,000

3. Profit after Tax (In Rs.) 11,14,990 17,05,222

4. Earnings per Share (Rs.) 0.22 0.34

7.2 Diluted Earnings per Share

None of the potential equity shares are dilutive.

8. The previous year s figures have been regrouped/rearranged wherever considered necessary.

Signatories to Schedule 1 to 13.

For Deloitte Haskins & Sells On behalf of the Board

Chartered Accountants

A. Bhattacharya V. H. Pandya Subrata Ghosh Manoj Agarwal

Partner Chairman Executive Director Company Secretary

Place : Kolkata

Dated: 21st June, 2005

Schedules to the Balance Sheet and Profit & Loss AccountFor the year ended March 31, 2005

13 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS (Contd.)

(Amount in Rupees)

155

Public IssueN I L

N I L

Bonus Issue

N I L

Accumulated Losses

Right IssueN I L

Private Placement

3 1 0 3

Registration No. State Code

Balance Sheet Date

I. Registration Details

INFORMATION PURSUANT TO PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956

Balance Sheet Abstract and Company s General Business Profile

II. Capital Raised during the year (Amount in Rs. Thousands)

Total Liabilities

7 1 4 4 8

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

2 0 0 5

2 1

Net Current Assets

3 3 9 3 0

Total Assets

7 1 4 4 8

8 7 1 5 5

Paid-up CapitalSources of Funds

5 0 5 0 0

Reserves and Surplus

6 2 6 7

Secured Loans

N I L

Unsecured Loans

N I L

Deferred Tax Liability

1 1 0 5

Net Fixed AssetsApplication of Funds

4 4 1 0

Investments

1 9 4 7 9

Miscellaneous Expenditure

5 2

N I L

IV. Performance of the Company (Amount in Rs. Thousands)

V. Generic Names of Three Principal Products/Services of the Company (as per monetary terms)

Turnover

1 0 8 6 0

Total Expenditure

9 2 1 4

Profit Before Tax [+](+ for Profit, – for Loss)

1 6 4 6

Profit After Tax [+](+ for Profit, – for Loss)

1 1 1 5

Earnings per share (in Rs.)0 . 2 2

Dividend Rate (%)

N I L

Balance Sheet Abstract

Item Code No. (ITC Code) Not ApplicableProduct Description Fund Mobilisation & Project Consultancy

Item Code No. (ITC Code) Not ApplicableProduct Description Merchant Banking

Item Code No. (ITC Code) Not ApplicableProduct Description Underwriting

On behalf of the Board

Place : Kolkata V. H. Pandya Subrata Ghosh Manoj Agarwal

Dated : 21st June, 2005 Chairman Executive Director Company Secretary

SREI Capital Markets Limited

156

Cash Flow StatementFor the year ended March, 31

For Deloitte Haskins & Sells On behalf of the Board

Chartered Accountants

A. Bhattacharya V. H. Pandya Subrata Ghosh Manoj Agarwal

Partner Chairman Executive Director Company Secretary

Place : Kolkata

Dated: 21st June, 2005

(Amount in Rupees)

2005 2004

A. Cash Flow From Operating Activities

Net Profit Before Tax 16,46,151 26,73,487

Adjustment for :

Depreciation 10,44,912 10,47,810

Preliminary Expenses written off 17,431 17,431

Interest Income – (1,17,823)

Dividend Income (4,620) (5,405)

Operating Profit before Working Capital changes 27,03,874 36,15,500

Adjustments for:

(Increase) / Decrease in Receivables/Others (91,10,957) (19,74,537)

(Decrease) / Increase in Trade Payables (19,15,816) 5,77,166

Net Cash (Used) / Generated in Operating Activities (83,22,899) 22,18,129

B. Cash Flow From Investing Activities

(Increase) / Decrease in Investments (2,50,000) 49,98,438

Interest Received – 1,17,823

Dividend Received 4,620 5,405

Net Cash (Used) / Generated in Investing Activities (2,45,380) 51,21,666

C. Cash Flow From Financing Activities – –

Net Increase / (Decrease) in Cash & Cash Equivalents (85,68,279) 73,39,795

Cash & Cash Equivalents as on 01.04.2004 74,49,985 1,10,190

Book Overdraft (11,59,462) –

Cash & Cash Equivalents as on 31.03.2005 41,168 74,49,985

Notes :

1. The above Cash Flow Statement has been prepared under the "Indirect Method" as set out in the Accounting Standard 3

(AS 3) Cash Flow Statement issued by the Institute of Chartered Accountants of India.

2. Previous year’s figures have been regrouped, wherever necessary to conform to the current year’s classification.

This is the Cash Flow Statement referred to in our report of even date.

157

Directors Report

The Board of Directors of your Company have pleasure in

presenting the Fourth Annual Report together with the Audited

Accounts of your Company for the year ended 31st March, 2005.

FINANCIAL RESULTS AND OPERATIONS(Amount in Rs.)

Year ended Year ended31st March, 31st March,

2005 2004

Income 31,662 17,82,514

Expenditure 1,20,953 17,75,949

Profit/(Loss) Before Tax (89,291) 6,565

Provision for Current Tax – 505

Income Tax for earlier years 4,217 –

Profit/(Loss) After Current Tax (93,508) 6,060

Provision for Deferred Tax 31,991 (1,648)

Profit/(Loss) After Tax carried

forward to next year (61,517) 4,412

OPERATIONAL REVIEW AND FUTURE OUTLOOKYour Company was engaged in the business of Corporate

Insurance Agency since its incorporation. However, as directed by

Insurance Regulatory and Development Authority (IRDA), your

Company had surrendered its Corporate Insurance Agency licence

since one of its sister concerns, SREI Insurance Services Limited

had been granted Composite Insurance Broking Licence by IRDA.

The Reserve Bank of India (RBI) has notified a new Act for the

purpose of Securitisation and Reconstruction Company under

Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (SRFAESI), which has

given rise to an emerging business opportunity. Your Board

considered that your Company should make best use of the

business opportunities and decided to change the object clause of

the Company to carry on the business of Securitisation and

Reconstruction Company.

Your Board is hopeful of commencing the new line of business of

Securitisation and Reconstruction in the current financial year.

DIVIDENDThe Board of Directors of your Company do not recommend any

dividend for this year.

PARTICULARS OF EMPLOYEESNone of the employees of your Company are in receipt of

remuneration requiring disclosures pursuant to the provisions of

Section 217(2A) of the Companies Act, 1956 read with the

Companies (Particulars of Employees) Rules, 1975 as amended,

hence no such particulars are annexed.

PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTFLOWYour Company has no activity relating to Conservation of Energy

and Technology Absorption as stipulated in the Companies

(Disclosure of particulars in the Report of Board of Directors) Rules,

1998.

Your Company has not utilized or earned any foreign exchange

during the year under review.

DIRECTORSIn accordance with the provisions of the Companies Act, 1956 and

your Company s Articles of Association, Mr. Arun Kedia, Director

retires by rotation and being eligible, offers himself for re-

appointment.

DIRECTORS’ RESPONSIBILITY STATEMENTIn terms of provisions of Section 217(2AA) of the Companies Act,

1956 (Act), your directors confirm:

(i) that in the preparation of the annual accounts for the financial

year ended 31st March, 2005, the applicable accounting

standards have been followed along with proper explanation

relating to material departures;

(ii) that the Directors have selected such accounting policies and

applied them consistently and made judgements and

estimates that are reasonable and prudent so as to give a true

and fair view of the state of affairs of the Company at the end

of the financial year and of the loss of the Company for the

year;

(iii) that the Directors have taken proper and sufficient care 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; and

(iv) that the Directors have prepared the annual accounts for the

financial year ended 31st March, 2005 on a going concern

basis.

AUDITORSM/s. Singhi & Co., Chartered Accountants retire as Auditors of your

Company at the conclusion of the ensuing Annual General Meeting

and have confirmed their eligibility and willingness to accept the

office of Auditors, if re-appointed.

ACKNOWLEDGEMENTYour Directors wish to place on record their grateful appreciation

for the excellent support and co-operation received from Insurance

Regulatory and Development Authority (IRDA), Bankers and its

employees at all levels.

On behalf of the Board of Directors

Place : Kolkata P. K. Ghosh Arun KediaDated : 25th May, 2005 Director Director

Dear Shareholders,

DIRECTORS AUDITORSMr. Arun Kedia Singhi & Co.Mr. D. K. Vyas Chartered AccountantsMr. P. K. Ghosh

SREI Insurance Agency & Broking Limited

158

Auditors Report

We have audited the annexed Balance Sheet of SREI InsuranceAgency & Broking Limited as at 31st March, 2005, the Profit &

Loss Account and the Cash Flow Statement for the year ended on

that date annexed thereto. 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.

We have conducted our audit in accordance with 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

misstatement. 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.

As required by the Companies (Auditor s Report) Order, 2003 as

amended by Companies (Auditor s Report) (Amendment) Order,

2004 issued by the Central Government of India in terms of sub-

section (4A) of Section 227 of the Companies Act, 1956, we

enclose in the Annexure, a statement on the matters specified in

paragraphs 4 and 5 of the said Order.

Further to our comments in the Annexure referred to above, we

report that -

1. We have obtained all the information and explanations, which

to the best of our knowledge and belief were necessary for the

purposes of our audit;

2. In our opinion, proper books of account as required by law have

been kept by the Company so far as appears from our

examination of those books;

3. The Balance Sheet, Profit and Loss Account and Cash Flow

Statement dealt with by this report are in agreement with the

books of account;

4. In our opinion, the Profit and Loss Account, Balance Sheet and

Cash Flow Statement dealt with by this report comply with the

requirements of the Accounting Standards referred to in sub-

section (3C) of Section 211 of the Companies Act, 1956;

5. On the basis of the written representations received from the

Directors as on 31st March, 2005 and taken on record by the

Board of Directors, we report that none of the Directors is

disqualified as on 31st March, 2005 from being appointed as a

Director in terms of clause (g) of sub-section (1) of Section 274

of the Companies Act, 1956;

6. In our opinion and to the best of our information and according

to the explanations given to us, the said accounts read with

other Notes thereon 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:

a) In the case of the Balance Sheet, of the state of affairs of

the Company as at 31st March, 2005;

b) In the case of the Profit and Loss Account, of the loss for

the year ended on that date; and

c) In the case of Cash Flow Statement, of the cash flows for

the year ended on that date.

For Singhi & Co.Chartered Accountants

Rajiv SinghiPlace : Kolkata Partner

Dated : 25th May, 2005 Membership No. 53518

To the Members,

159

Annexure to the Auditors Report

i) (a) The Company has maintained proper records showing fullparticulars including quantitative details and situation of itsfixed assets.

(b) The fixed assets have been physically verified by themanagement as per a based program adopted by theCompany. In our opinion, the frequency of verification isreasonable having regard to the size of the Company andthe nature of its assets. As per the information andexplanations given to us, no material discrepancies werenoticed on such verification.

(c) The Company has not disposed off substantial part of itsfixed assets during the year.

ii) Since the Company does not have any inventories, the clausesrelating to it are not applicable.

iii) (a) According to the information and explanations given to us,the Company has not granted any loans secured orunsecured to Companies, Firms or other parties covered inthe register maintained under Section 301 of theCompanies Act, 1956. Hence Clauses iii (b), (c) & (d) are notapplicable to the Company for the current year.

(b) As per the information furnished, the Company has nottaken any loan secured or unsecured from Companies,Firms or other parties covered in the Register maintainedunder Section 301 of the Companies Act, 1956. HenceClauses iii (f) & (g) of the Order are not applicable to theCompany for the current year.

iv) In our opinion and according to the information andexplanations given to us, there are adequate internal controlprocedures commensurate with the size of the Company andthe nature of its business for the purchase of inventory andfixed assets and for the sale of goods and services. Further onthe basis of our examinations of the books of account andaccording to the information and explanations given to us, wehave not come across nor have we been informed of anyinstances of major weaknesses in the aforesaid internalcontrol system.

v) (a) Register in pursuance of Section 301 of the CompaniesAct, 1956 have been maintained by the Company.

(b) No transactions have been entered into during the currentyear which are required to be entered in the Register to bemaintained under Section 301 of the Companies Act, 1956.Hence this Clause is not applicable to the Company.

vi) The Company has not accepted any deposit during the yearfrom the public within the meaning of the provisions ofSection 58A and 58AA of the Companies Act, 1956 and rulesmade there under. According to the information andexplanations given to us no order has been passed byCompany Law Board or National Company Law Tribunal orReserve Bank of India or any Tribunal on the Company.

vii) Internal Audit system is not applicable to the Company.

viii) According to the information and explanations given to us,maintenance of cost records are not applicable to theCompany.

ix) a) The Company has generally been regular in depositingundisputed statutory dues including Provident Fund,

Investor s Education and Protection Fund, EmployeesState Insurance, Income Tax, Sales Tax, Wealth Tax,Custom Duty, Excise Duty, Service Tax, Cess and any otherstatutory dues with the appropriate authorities during theyear.

b) As per information and explanations given to us, there areno disputed Income Tax etc. outstanding as on 31st March,2005.

x) As the Company has been registered for a period of less thanfive years, the related clause regarding accumulated lossesand cash loss are not applicable to the Company.

xi) Based on our audit procedures and on the basis of informationand explanations given by the management, we are of theopinion that the Company has not defaulted in the repaymentof dues to financial institutions, banks and debenture holders.

xii) According to the information and explanations given to us, theCompany has not granted loans and advances on the basis ofsecurity by way of pledge of shares, debentures and othersecurities.

xiii) The Company is not a chit fund / nidhi / mutual benefit fund /society.

xiv) According to the information and explanations given to us, theCompany is not dealing in or trading in shares, securities,debentures and other investments.

xv) According to the information and explanations given to us, theCompany has not given any guarantee for loans taken byothers from banks or financial institutions.

xvi) According to the information and explanations given to us, theCompany has not raised any term loan during the year.

xvii) According to the information and explanations given to us, onan overall basis, funds raised on short-term basis have, primafacie, not been used during the year for long term investmentand vice-versa.

xviii) The Company has not made any preferential allotment ofshares to parties or companies covered in the Registermaintained under Section 301 of the Companies Act, 1956during the year and hence the question of whether the price atwhich shares have been issued is prejudicial to the interest ofthe Company does not arise.

xix) The Company has not issued any debentures during the year.

xx) The Company has not raised any money by public issuesduring the year.

xxi) To the best of our knowledge and belief and according to theinformation and explanations given to us, no fraud on or by theCompany was noticed or reported during the year.

For Singhi & Co.Chartered Accountants

Rajiv SinghiPlace : Kolkata Partner

Dated : 25th May, 2005 Membership No. 53518

SREI Insurance Agency & Broking Limited

160

Balance Sheet As at March 31

Schedules referred to above form an integral part of the Accounts.

For Singhi & Co. On behalf of the Board of DirectorsChartered Accountants

Rajiv Singhi P. K. Ghosh Arun KediaPartner Director DirectorMembership No. 53518

Place : KolkataDated : 25th May, 2005

(Amount in Rupees)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholders’ Fund

Share Capital 1 5,00,000 5,00,000

Reserves & Surplus 2 3,34,778 8,34,778 3,96,295 8,96,295

Loan Funds 3

Secured – 6,04,077

Deferred Tax – 31,345

834,778 15,31,717

APPLICATION OF FUNDS

Fixed Assets 4

Gross Block – 8,18,726

Less: Depreciation – 78,844

Net Block – 7,39,882

Current Assets, Loans & Advances

Current Assets 5 1,13,849 25,930

Loans & Advances 6,59,245 8,95,963

7,73,094 9,21,893

Less: Current Liabilities & Provisions 6 9,918 2,12,840

9,918 2,12,840

Net Current Assets 7,63,176 7,09,053

Deferred Tax 646 –

Miscellaneous Expenditure 7

Preliminary Expenses to the extent

not written off or adjusted 70,956 82,782

8,34,778 15,31,717

Significant Accounting Policies and

Notes on Accounts 9

161

Profit and Loss AccountFor the year ended March 31

Schedules referred to above form an integral part of the Accounts.

For Singhi & Co. On behalf of the Board of DirectorsChartered Accountants

Rajiv Singhi P. K. Ghosh Arun KediaPartner Director DirectorMembership No. 53518

Place : KolkataDated : 25th May, 2005

(Amount in Rupees)

Schedule 2005 2004

INCOME

Income From Operations – 17,79,564

Interest Received on Income Tax Refund 31,662 2,950

31,662 17,82,514

EXPENDITURE

Administrative & Other Expenses 8 76,719 16,86,344

Depreciation 32,408 77,779

Miscellaneous Expenditure written off 11,826 11,826

1,20,953 17,75,949

Profit/(Loss) Before Tax (89,291) 6,565

Provision for Current Taxation – 505

Income Tax for earlier years 4,217 –

Profit/(Loss) After Current Taxation (93,508) 6,060

Deferred Tax 31,991 (1,648)

Profit/(Loss) After Tax (61,517) 4,412

Balance brought forward from last period 3,96,295 3,91,883

Balance carried to Balance Sheet 3,34,778 3,96,295

Significant Accounting Policies and

Notes on Accounts 9

SREI Insurance Agency & Broking Limited

162

Schedules to the Balance Sheet As at March 31

Authorised5,00,000 (Previous Year 5,00,000) Equity Shares of Rs. 10 each 50,00,000 50,00,000Issued, Subscribed and Paid Up Capital50,000 (Previous Year 50,000) Equity Shares of Rs. 10 each fully paid up 5,00,000 5,00,000

5,00,000 5,00,000

Note: The entire Share Capital is held by SREI Infrastructure Finance Limited, the Holding Co. and its nominees.

(Amount in Rupees)

2005 2004

1 SHARE CAPITAL

Profit & Loss Account 3,34,778 3,96,295

2005 2004

2 RESERVES AND SURPLUS

Deferred Credit (Secured against hypothecation of Motor Vehicle) – 6,04,077

2005 2004

3 SECURED LOANS

4 FIXED ASSETS

PARTICULARS GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCK

As at Addition Sold As at Upto For Adjust- As at As at As at

March 31, during during March 31, March 31, the year ment March 31, March 31, March 31,

2004 the year the year 2005 2004 2005 2005 2004

Motor Vehicles 8,18,726 – 8,18,726 – 78,844 32,408 1,11,252 – – 7,39,882

Total 8,18,726 – 8,18,726 – 78,844 32,408 1,11,252 – – 7,39,882

Previous Year 8,18,726 – – 8,18,726 1,065 77,779 – 78,844 7,39,882

163

Schedules to the Balance Sheet As at March 31

Schedules to the Profit and Loss AccountFor the year ended March 31

Current AssetsSundry Debtors(Unsecured, Considered good)- Debts outstanding for a period exceeding six months 10,200 –- Other debts – 10,200 Cash In Hand 2,956 2,630 Balances with Scheduled Banks 1,00,693 13,100

1,13,849 25,930 Loans & Advances(Unsecured, Considered good)Income Tax Refund receivable 2,87,499 –Tax Deducted at Source 3,71,746 8,95,963

6,59,245 8,95,963

(Amount in Rupees)

2005 2004

5 CURRENT ASSETS, LOANS AND ADVANCES

Other Liabilities 9,918 23,699 Provision for Current Tax – 1,89,141

9,918 2,12,840

2005 2004

6 CURRENT LIABILITIES AND PROVISIONS

2005 2004

7 MISCELLANEOUS EXPENDITURE

(To the extent not written off or adjusted)Preliminary Expenses 70,956 82,782

70,956 82,782

2005 2004

8 ADMINISTRATIVE & OTHER EXPENSES

Salary & Allowances – 9,51,747 Employer Contribution to Provident Fund – 12,240 Travelling & Conveyance 20,700 3,35,748 Postage, Telephone & Telegram 3,846 22,698 Professional Fees 551 2,75,000 Printing & Stationery – 5,130 Audit Fees to Statutory Auditor 9,918 6,480 Rates & Taxes 3,835 5,312 Insurance Premium 7,404 –

Finance Charges 21,472 53,921 Other Miscellaneous Expenses 8,993 18,068

76,719 16,86,344

SREI Insurance Agency & Broking Limited

164

Schedules to the Balance Sheet and Profit & Loss Account

A. SIGNIFICANT ACCOUNTING POLICIES1. Basis of Accounting

The financial statements are prepared in accordance with generally accepted accounting principles in India and the provisions of the Companies Act, 1956. The Company follows the accrual method of accounting under historical cost convention.

2. Investments Current Investments are valued at lower of Cost or Market value. All long-term investments are valued at cost . However,provision for diminution in the value of long term investments is made by the Company to recognise permanent decline,if any, in value of investments individually.

3. Retirement Benefits to EmployeesRetirement benefits to employees are provided on the basis of actuarial valuation.

4. Tax on IncomeTax expense for the year comprises of current tax expense and deferred tax expense. Current tax is measured at the amount expected to be paid to the taxation authorities using the applicable tax rates and tax laws. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.

5. Miscellaneous ExpenditurePreliminary expenses are amortised over a period of 10 years.

6. Contingent Liabilities Contingent Liabilities not provided for, if any are separately shown by way of a note in this schedule.

B. NOTES ON ACCOUNTSi. Previous year s figures have been regrouped or rearranged, wherever considered necessary.

ii. There are no dues outstanding to small scale industrial undertakings as on the Balance Sheet date.

iii. As none of the employees have put in the requisite period of service for entitlement of retirement benefits therefore noprovision has been made.

iv. Earnings and Expenditure in Foreign Currency – Rs. Nil.

v. Related Party TransactionsThe Company has the following related parties:

Holding Company : SREI Infrastructure Finance Ltd.Fellow Subsidiaries : SREI Capital Markets Ltd.

SREI Forex Ltd.SREI Money Mall Ltd.SREI Insurance Services Ltd.SREI Venture Capital Ltd.Global Investment Trust Ltd.IIS International Infrastructure Services GmbhBengal SREI Infrastructure Development Ltd.

Key Management Personnel : Mr. D. K. Vyas, DirectorMr. P. K. Ghosh, DirectorMr. Arun Kedia, Director

Summary of transactions with related parties: (Amount in Rupees)

Holding Fellow Key ManagementCompany Subsidiaries Personnel

Sale of Motor Vehicle 7,07,474/- – –(Nil)

Short term Advance - Received 2,50,000/- – –(Nil)

Outstanding at the year end Nil Nil –(Nil) (Nil)

Previous Year s figures are shown in bracket.

10 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS

Signatories to Schedule 1 to 9.

Schedules referred to above form an integral part of the Accounts.As per our report annexed.

For Singhi & Co. On behalf of the Board of DirectorsChartered Accountants

Rajiv Singhi P. K. Ghosh Arun KediaPartner Director DirectorMembership No. 53518

Place : KolkataDated : 25th May, 2005

165

On behalf of the Board of Directors

Place : Kolkata P. K. Ghosh Arun KediaDated : 25th May, 2005 Director Director

3 1 0 3

Registration No. State Code

Balance Sheet Date

I. Registration Details

INFORMATION PURSUANT TO PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956Balance Sheet Abstract and Company s General Business Profile

II. Capital Raised during the year (Amount in Rs. Thousands)

Total Liabilities8 4 5

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

2 0 0 5

2 1

Net Current Assets7 6 3

Total Assets8 4 5

9 3 3 1 6

Paid-up CapitalSources of Funds

5 0 0

Unsecured LoansN I L

Reserves and Surplus3 3 5

Secured LoansN I L

Net Fixed AssetsApplication of Funds

N I LInvestments

N I L

Accumulated LossesN I L

Miscellaneous Expenditure7 1

Deferred Tax Asset1

IV. Performance of the Company (Amount in Rs. Thousands)

Item Code No. (ITC Code) N.A.Product Description N.A.

Item Code No. (ITC Code) N.A.Product Description N.A.

Item Code No. (ITC Code) N.A.Product Description N.A.

V. Generic Names of Three Principal Products/Services of the Company (As per monetary terms)

Turnover3 2

Total Expenditure

1 2 1

Profit/(Loss) before Tax

(8 9)

Profit/(Loss) after Tax

(6 2)Earnings per share (in Rs.)

N I LDividend Rate (%)

N I L

Public IssueN I L

Right IssueN I L

Bonus IssueN I L

Private PlacementN I L

Balance Sheet Abstract

SREI Insurance Agency & Broking Limited

166

Cash Flow StatementFor the year ended March 31

A. Cash Flow From Operating Activities

Net Profit/(Loss) before tax (89,291) 6,565

Adjustments for:

Depreciation 32,408 77,779

Preliminary Expenses written off 11,826 11,826

Interest Income (31,662) (2,950)

Operating Profit before Working Capital changes (76,719) 93,220

Adjustments for:

(Increase)/Decrease in Receivables/others (2,87,499) 80,375

Increase/(Decrease) in Trades Payables/others (13,781) 17,219

Cash generated from Operating activities (3,77,999) 190,814

Less: Direct Taxes Paid 3,30,859 (2,82,552)

Net Cash From Operating Activities (47,140) (91,738)

B. Cash Flow From Investing Activities

Sale of Fixed Asset 7,07,474 –

Interest Received 31,662 2,950

Net Cash From Investing activities 7,39,136 2,950

C. Cash Flow From Financing Activities

Net Increase/(Decrease) in borrowings (6,04,077) (1,10,936)

Net Cash Flow From Financing Activities (6,04,077) (1,10,936)

Net Increase/(Decrease) in Cash & Cash Equivalents 87,919 (1,99,724)

Cash and Cash Equivalents as on 01.04.2004 15,730 2,15,454

Cash and Cash Equivalents as on 31.03.2005 1,03,649 15,730

Notes:1. The above Cash Flow Statement has been prepared under the ’Indirect Method’ as set out in the Accounting Standard 3 (AS

3) ’Cash Flow Statements’ issued by The Institute of Chartered Accountants of India.

2. Cash and Cash equivalents represents Cash in Hand and Balances with Bank.

(Amount in Rupees)

2005 2004

For Singhi & Co. On behalf of the Board of DirectorsChartered Accountants

Rajiv Singhi P. K. Ghosh Arun KediaPartner Director DirectorMembership No. 53518

Place : KolkataDated : 25th May, 2005

167

Directors Report

The Board of Directors of your Company have pleasure in

presenting the Third Annual Report together with the Audited

Accounts of your Company for the year ended 31st March, 2005.

FINANCIAL RESULTS AND OPERATIONS(Rs. in Thousands)

Year ended Year ended31st March, 31st March,

2005 2004

Income 729 752

Expenditure 8,241 3,578

Profit/(Loss) Before Tax (7,512) (2,826)

Provision for Current Tax – –

Profit/(Loss) After Current Tax (7,512) (2,826)

Provision for Deferred Tax 2,435 1,001

Profit/(Loss) After Tax carried

forward to next year (5,077) (1,824)

During the year under review, your Company has earned an income

of Rs. 7,28,954/- as against Rs. 7,51,929/- in the previous year.

However, in view of the high establishment expenditure, your

Company has incurred a loss of Rs. 50,76,845/- after providing for

Deferred Tax.

In order to expand the product basket, your Company has

empanelled with various Mutual Funds and built alliances with a

number of Banks and Institutions for distribution and retailing of

their various financial products and services at competitive prices.

With these efforts, the Board is hopeful of enhancing the brand

value of SREI Money Mall in the financial markets.

Your Company has also entered into an agreement with Birla Sun

Life Distribution House for distribution of insurance and mutual

fund products.

In the field of Housing Finance, your Company is trying to establish

relationship with reputed housing finance companies in order to

market housing loan products. Your Directors are confident that

these new ventures will help your Company in boosting its

performance in the coming years.

SREI Money Mall had been established to be the One Stop Super

Market for all financial products offering the entire range of

financial products and services in an effort to optimise the

customers requirements and preferences in matters related to

money. The Mall offers to meet the requirements of information

and quality service on savings, borrowings, investment products &

other money related services of its valued customers. The range of

products at Money Mall include Government Securities and Bonds,

Fixed Deposits Schemes, Mutual Funds, Foreign Exchange,

Credit/Debit cards, Loan products - Personal Loans, Consumer

Loans, Home Loans, Education Loans, Auto Loans and even Solar

Loans, Life and Non-Life Insurance products, ATM facility etc.

PARTICULARS OF EMPLOYEESNone of the employees of your Company are in receipt of

remuneration requiring disclosures pursuant to the provisions of

Section 217(2A) of the Companies Act, 1956 read with the

Companies (Particulars of Employees) Rules, 1975 as amended,

hence no such particulars are annexed.

PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION, FOREIGN EXCHANGE EARNINGS ANDOUTFLOWYour Company has no activity relating to Conservation of Energy

and Technology Absorption as stipulated in the Companies

(Disclosure of Particulars in the Report of Board of Directors)

Rules, 1988.

During the year under review, the expenditure of your Company in

foreign exchange was Rs. 1,06,026/- (Previous year Nil) and there

was no earning in foreign exchange.

DIRECTORSDuring the year, Mr. D. K. Vyas and Mr. Suneet K. Maheshwari

were appointed as Additional Directors of your Company with

effect from 8th November, 2004 and 6th June, 2005 respectively.

In terms of Article 132 of the Articles of Association of your

Company, Mr. Suneet K. Maheshwari will hold the office as

Additional Director upto the date of the ensuing Annual General

Meeting. Your Company has received notice in writing under

Section 257 of the Companies Act, 1956 from a member of the

Company proposing the appointment of Mr. Suneet K. Maheshwari

as Director of the Company.

In accordance with the provisions of the Companies Act, 1956

and your Company s Articles of Association, Mr. P. K. Ghosh,

Director retires by rotation and being eligible, offers himself for

re-appointment.

Mr. K. C. Jain and Mr. D. K. Vyas resigned as Directors of your

Company with effect from 8th November, 2004 and 6th June, 2005

respectively. The Board places on record its appreciation for the

valuable services rendered by them during their tenure as Directors

of your Company.

DIRECTORS RESPONSIBILITY STATEMENTIn terms of provisions of Section 217(2AA) of the Companies Act,

1956 (Act), your directors confirm:

(i) that in the preparation of the annual accounts for the year

ended 31st March, 2005, the applicable accounting standards

have been followed along with proper explanation relating to

material departures;

(ii) that the Directors have selected such accounting policies and

applied them consistently and made judgments and estimates

Dear Shareholders,

DIRECTORS AUDITORSMr. Salil K. Gupta - Chairman Chetan Chaturvedi & Co.Mr. P. K. Ghosh Chartered AccountantsMr. Suneet K. Maheshwari

SREI Money Mall Limited

168

Auditors Report

that are reasonable and prudent so as to give a true and fair

view of the state of affairs of the Company at the end of the

financial year and of loss of the Company for the year;

(iii) that the Directors have taken proper and sufficient care 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; and

(iv) that the Directors have prepared the annual accounts for the

financial year ended 31st March, 2005 on a going concern

basis.

AUDITORSM/s. Chetan Chaturvedi & Co., Chartered Accountants retire as

Auditors of your Company at the conclusion of the ensuing Annual

General Meeting and have confirmed their eligibility and

willingness to accept the office of Auditors, if re-appointed.

ACKNOWLEDGEMENTYour Directors wish to place on record their grateful appreciation

for the excellent support and co-operation received from HDFC

Bank, UCO Bank, ICICI Bank, Standard Chartered Bank, ING Vysya

Bank, Centurion Bank, UTI Bank, IDBI Bank, Dena Bank, Birla Sun

Life Distribution House, various Mutual Funds and Clients. Your

Directors also wish to place on record their deep appreciation to

the employees for their whole-hearted and dedicated services.

On behalf of the Board of Directors

Place : Kolkata Salil K. GuptaDated : 21st June, 2005 Chairman

We have audited the Balance Sheet of SREI Money Mall Limitedas at 31st March, 2005, the Profit and Loss Account and the Cash

Flow Statement of the said Company for the year ended on that

date, both annexed thereto. 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.

We conducted our audit in accordance with 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 mis-

statement. 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.

As required by the Companies (Auditors Report) Order, 2003

issued by the Central Government of India in terms of sub-section

(4A) of Section 227 of the Companies Act, 1956, we enclose in the

Annexure a statement on the matters specified in paragraphs 4 & 5

of the said order.

Further to our comments in the Annexure referred to above, we

report that:

i) We have obtained all the information and explanation, which to

the best of our knowledge and belief were necessary for the

purposes of our audit.

ii) In our opinion, proper books of account as required by law have

been kept by the Company so far as appears from our

examination of those books.

iii) The Balance Sheet, Profit and Loss Account and the Cash Flow

Statement dealt with by this report are in agreement with the

Books of Account.

iv) In our Opinion, the Balance Sheet and Profit and Loss Account

dealt with by this report comply with the accounting standards

referred to in sub-section (3C) of Section 211 of the Companies

Act, 1956.

v) On the basis of written representations received from the

directors as on 31st March, 2005 and taken on record by the

Board of Directors, we report that none of the directors is

disqualified as on 31st March, 2005 from being appointed as a

director in terms of clause (g) of sub-section (1) of Section 274

of the Companies Act, 1956.

We report that 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;

a) In the case of Balance Sheet, of the state of affairs of the

Company as at 31st March, 2005;

b) In the case of Profit and Loss Account, of the loss for the year

ended on that date; and

c) In the case of the Cash Flow Statement, of the cash flow for

the year ended on that date.

For Chetan Chaturvedi & Co.Chartered Accountants

A. SomPlace : Kolkata Partner

Dated : 21st June, 2005 Membership No. 6308

To The Members,

169

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

Annexure to the Auditors Report

(i) (a) The Company has maintained proper records showing full

particulars, including quantitative details and situation of

fixed assets.

(b) The fixed assets were physically verified during the year

by the management which in our opinion provides for

physical verification of all the fixed assets at reasonable

intervals. According to the information and explanations

given to us, no material discrepancies are noticed on such

verification.

(c) The Company has not disposed off substantial part of its

fixed assets.

(ii) As informed to us, the Company does not have any

inventories and as such clauses ii(a) to ii(c) are not applicable.

(iii) The Company has not taken or granted any secured or

unsecured loan from or to the companies, firms or other

parties covered under Section 301 of the Companies Act,

1956 and such clauses (iii)(a) to (iii)(d) are not applicable.

(iv) In our opinion and according to the information and

explanations given to us, there are adequate internal control

procedures commensurate with the size of the Company and

the nature of its business for the purchase of fixed assets.

There is no continuing failure to correct the major weakness

in the internal control.

(v) According to the information available and explanations given

to us, there are no transactions for purchase of goods,

materials and sale of goods and services made in pursuance

of contracts or arrangements entered in the register

maintained under Section 301 of the Companies Act, 1956

and aggregating during the year to Rs. 5 lacs or more in

respect of each party.

(vi) The Company has not accepted any deposits from public

under Sections 58A and 58AA of the Companies Act,1956.

(vii) Internal Audit is not applicable to the Company.

(viii) To the best of our knowledge and as explained, the Central

Government has not prescribed maintenance of cost records

under clause (d) of sub-section (1) of Section 209 of the

Companies Act,1956 for the Company.

(ix) According to the records of the Company, the Company is

regular in depositing statutory dues including the income tax

and other statutory dues applicable to it with appropriate

authorities. According to information and explanations given

to us, there are no undisputed statutory dues at the year end

for a period of more than six months from the date they

became payable.

(x) As the Company has been registered for a period of less than

five years, the related clause regarding accumulated losses

and cash loss are not applicable to the Company.

(xi) Based on our audit procedures and on the basis of

information and explanations given by the management, we

are of the opinion that the Company has not defaulted in the

repayment of dues to financial institutions and banks.

(xii) According to the information and explanations given to us,

the Company has not granted loans or advances on the basis

of security by way of pledge of shares, debentures and other

securities.

(xiii) The Company is not a Chit Fund or a Nidhi/Mutual Benefit

Fund/Society. Therefore the provisions of Clause 4(xiii) are not

applicable to the Company.

(xiv) As informed and explained to us, the Company has not

dealt/traded in securities or debentures during the year.

(xv) 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.

(xvi) No term loan has been taken during the year.

(xvii) According to the information and explanations given to us,

on an overall basis, funds raised on short term basis have,

prima facie, not been used during the year for long term

investment and vice versa.

(xviii) The Company has not made any preferential allotment of

shares to parties and companies covered in the Register

maintained under Section 301 of the Companies Act, 1956,

during the year and hence the question whether the price at

which shares have been issued is prejudicial to the interest of

the Company does not arise.

(xix) The Company has not issued any debentures during the year

and thus no securities have been created.

(xx) The Company has not raised monies by public issues during

the year.

(xxi) To the best of our knowledge and belief and according to the

information and explanations given to us, no fraud on or by

the Company was noticed or reported during the year.

For Chetan Chaturvedi & Co.Chartered Accountants

A. SomPlace : Kolkata Partner

Dated : 21st June, 2005 Membership No. 6308

SREI Money Mall Limited

170

Balance Sheet As at March, 31

For Chetan Chaturvedi & Co. On behalf of the Board

Chartered Accountants

A. Som Suneet K. Maheshwari Salil K. Gupta

Partner Director Chairman

Membership No. 6308

Place : Kolkata

Dated : 21st June, 2005

The Schedules ’1’ to ’5’ and ’7’ referred to above form an integral part of the Balance Sheet.

This is the Balance Sheet referred to in our report of even date.

(Amount in Rupees)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholders’ Fund

Share Capital 1 5,00,000 5,00,000

Loan Funds

Unsecured Loan 1,87,71,194 1,69,28,000

Total 1,92,71,194 1,74,28,000

APPLICATION OF FUNDS

Fixed Assets 2

Gross Block 1,02,17,169 1,02,12,512

Less: Depreciation 15,88,307 8,83,972

Net Block 86,28,862 93,28,540

Current Assets, Loans & Advances

Current Assets 3 2,30,754 1,02,142

Loans & Advances 4 14,67,514 41,57,121

16,98,268 42,59,263

Less: Current Liabilities & Provisions

Liabilities 5 29,21,155 5,24,735

29,21,155 5,24,735

Net Current Assets (12,22,887) 37,34,528

Deferred Tax Asset 39,64,441 15,29,184

Miscellaneous Expenditure 90,583 1,02,398

(Preliminary Expenses to the extent not written off or adjusted)

Profit & Loss Account 78,10,195 27,33,350

Total 1,92,71,194 1,74,28,000

Significant Accounting Policies and 7

Notes on Financial Statements

171

Profit and Loss AccountFor the year ended March, 31

For Chetan Chaturvedi & Co. On behalf of the Board

Chartered Accountants

A. Som Suneet K. Maheshwari Salil K. Gupta

Partner Director Chairman

Membership No. 6308

Place : Kolkata

Dated : 21st June, 2005

The Schedules ’6’ and ’7’ referred to above form an integral part of the Profit & Loss Account.

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

(Amount in Rupees)

Schedule 2005 2004

INCOME

Brokerage Received 7,28,954 4,99,892

Licence Fees – 2,40,000

Other Income – 12,037

Total 7,28,954 7,51,929

EXPENDITURE

Administrative & Other Expenses 6 75,24,668 28,89,052

Depreciation 7,04,573 6,76,736

Miscellaneous Expenditure written off 11,815 11,815

Total 82,41,056 35,77,603

Profit / (Loss) Before Tax (75,12,102) (28,25,674)

Provision for Current Tax – –

Profit / (Loss) After Current Tax (75,12,102) (28,25,674)

Deferred Tax 24,35,257 10,01,138

Profit / (Loss) After Deferred Tax (50,76,845) (18,24,536)

Balance brought forward from Previous year (27,33,350) (9,08,814)

Profit /(Loss) after Tax carried to Balance Sheet (78,10,195) (27,33,350)

Significant Accounting Policies and 7

Notes on Financial Statements

SREI Money Mall Limited

172

Schedules to the Balance Sheet As at March, 31

Authorised

5,00,000 Equity Shares of Rs.10/- each 50,00,000 50,00,000

Issued, Subscribed & Paid-up

50,000 (Previous Year 50,000) Equity Shares of Rs.10/- each 5,00,000 5,00,000

fully paid-up in cash

5,00,000 5,00,000

Note : The entire Share Capital is held by SREI Infrastructure Finance Ltd., the Holding Co. and its nominees.

(Amount in Rupees)

2005 2004

1 SHARE CAPITAL

Sundry Debtors 1,15,312 –

Cash In Hand 3,524 49,152

Balances with Scheduled Bank 1,11,918 52,990

2,30,754 1,02,142

2005 2004

3 CURRENT ASSETS

Sundry Creditors – 9,573

Security Deposit 27,40,000 2,40,000

Others 1,81,155 2,75,162

29,21,155 5,24,735

2005 2004

5 CURRENT LIABILITIES

(Unsecured, Considered good)

Advances recoverable in cash or in kind or for value to be

received or pending adjustments

Prepaid Expenses 1,25,000 4,25,000

Security Deposit 9,79,295 9,79,295

Advance to Staff 200 10,322

Tax deducted at Source 26,237 8,078

Others 3,36,782 27,34,426

14,67,514 41,57,121

2005 2004

4 LOANS & ADVANCES

2 FIXED ASSETS

PARTICULARS GROSS BLOCK DEPRECIATION NET BLOCK

As at Addition Sales/ As at Upto For the Sales/Adj. Upto As at As at

March 31, during Adj. during March 31, March 31, year during March 31, March 31, March 31,

2004 the year the year 2005 2004 the year 2005 2005 2004

Office Equipment 12,32,203 – – 12,32,203 75,028 58,530 – 1,33,558 10,98,645 11,57,175

Computers 10,23,495 – 18,500 10,04,995 1,88,890 1,62,910 (238) 3,51,562 6,53,433 8,34,605

Furniture & Fittings 65,80,009 23,157 – 66,03,166 5,35,025 4,17,735 – 9,52,760 56,50,406 60,44,984

Electrical Installation 13,76,805 – – 13,76,805 85,029 65,398 – 1,50,427 12,26,378 12,91,776

Total 1,02,12,512 23,157 18,500 1,02,17,169 8,83,972 7,04,573 (238) 15,88,307 86,28,862 93,28,540

Previous Year 98,05,719 4,24,293 17,500 1,02,12,512 2,07,236 6,77,446 (710) 8,83,972 93,28,540

173

Schedules to the Profit & Loss Account For the year ended March, 31

Salaries & Allowances 15,76,468 10,93,503

Employer’s Contribution to Provident Fund 95,621 54,730

Postage,Telegram and Telephone 5,65,038 2,36,080

Commission 15,60,000 –

Professional Fees 1,34,701 15,525

Electricity Charges 1,63,093 1,52,584

Rates and Taxes 10,060 30,860

Brokerage & Service Charges 1,93,990 1,30,519

Auditors’ Remuneration 5,510 8,640

Repairs and Maintenance 1,33,577 1,40,213

Travelling and Conveyance 4,84,464 3,88,105

Printing and Stationery 60,958 1,30,930

Advertisement Expenses 28,780 1,72,044

Staff Welfare 1,45,525 73,358

Business Promotion Expenses 4,13,902 –

Loss on sale of Fixed Asset 3,262 –

Other Miscellaneous Expenses 1,49,719 2,61,961

Prior Year Expenses 18,00,000 –

Total 75,24,668 28,89,052

2005 2004

6 ADMINISTRATIVE & OTHER EXPENSES

(Amount in Rupees)

Schedules to the Balance Sheet and Profit & Loss Account

7 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS

A. SIGNIFICANT ACCOUNTING POLICIES1. Financial Statements are prepared under the historical cost convention and in accordance with the Generally Accepted

Accounting Principles and are on the basis of going concern.

2. Fixed Assets are stated at cost.

3. Depreciation on Fixed Assets is provided on straight line method in accordance with the rates specified in Schedule XIV tothe Companies Act,1956.

4. All income and expenditure are accounted for on accrual basis unless otherwise stated.

5. Preliminary Expenses are being amortised in ten annual installments.

6. Retirement benefits are accounted for on accrual basis.

7. Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognised,subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the differencebetween taxable income and accounting income that originate in one period and are capable of reversal in one or moresubsequent periods.

8. Contingent Liabilities not provided for, if any are separately shown by way of a note in this Schedule.

B. NOTES ON ACCOUNTS

1. Contingent liability in respect of TDS demand not provided for - Rs. 500,531/- (Previous Year - Nil)

2. There are no dues outstanding to small scale industrial undertakings as on the Balance Sheet date.

3. The Company has taken interest free unsecured loan amounting to Rs.18,771,194/- from its Holding Company.

4. The requirements of Para 4C and 4D of Schedule VI to the Companies Act, 1956 are not applicable to the Company.

5. Expenditure in Foreign Currency: Rs.106,026/- (Previous Year - Nil).

6. Figures for the previous year have been regrouped/rearranged, wherever considered necessary.

SREI Money Mall Limited

174

Schedules to the Balance Sheet and Profit & Loss Account

7 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON FINANCIAL STATEMENTS (Contd.)

7. Auditor’s Remuneration (Amount in Rupees)

2005 2004

Audit Fees 5,510 5,400

Others Nil 3,240

Total 5,510 8,640

8. Related Party TransactionsThe Company has the following related parties:

Holding Company : SREI Infrastructure Finance Ltd.

Fellow Subsidiaries : SREI Capital Markets Ltd. SREI Forex Ltd.SREI Insurance Services Ltd. SREI Insurance Agency & Broking Ltd.SREI Venture Capital Ltd. Global Investment Trust Ltd.IIS International Infrastructure Services Gmbh Bengal SREI Infrastructure Development Ltd.

Key Management Personnel : Mr. Salil K. Gupta, DirectorMr. P. K. Ghosh, DirectorMr. D. K. Vyas, Director

Summary of transactions with related parties: (Amount in Rupees)

Holding Company Fellow Key ManagementSubsidiaries Personnel

Brokerage Received 1,10,100 – –

(1,47,860)

Unsecured Loan - Received 38,43,194 – –

(1,69,28,000)

Unsecured Loan - Refunded 20,00,000 – –

(Nil)

Security Deposit Received – 25,00,000* –

(Nil)

Outstanding at the year end 1,87,71,194 25,00,000* –

(1,69,28,000) (Nil)

* SREI Capital Markets Ltd. Figures in bracket pertain to previous year.

For Chetan Chaturvedi & Co. On behalf of the Board

Chartered Accountants

A. Som Suneet K. Maheshwari Salil K. Gupta

Partner Director Chairman

Membership No. 6308

Place : Kolkata

Dated : 21st June, 2005

175

On behalf of the Board

Place : Kolkata Suneet K. Maheshwari Salil K. Gupta

Dated : 21st June, 2005 Director Chairman

Public IssueN I L

N I L

Bonus Issue

7 8 1 0

Accumulated Losses

Right IssueN I L

Private Placement

3 1 0 3

Registration No. State Code

Balance Sheet Date

I. Registration Details

INFORMATION PURSUANT TO PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956

Balance Sheet Abstract and the Company s General Business Profile

II. Capital Raised during the year (Amount in Rs. Thousands)

Total Liabilities

2 2 1 9 2

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

2 0 0 5

2 1

Net Current Assets

(1 2 2 3)

Total Assets

2 2 1 9 2

9 5 4 5 5

Paid-up CapitalSources of Funds

5 0 0

Reserves and Surplus

N I L

Secured Loans

N I L

Unsecured Loans

1 8 7 7 1

Net Fixed AssetsApplication of Funds

8 6 2 9

Investments

N I L

Miscellaneous Expenditure

9 1

N I L

IV. Performance of the Company (Amount in Rs. Thousands)

V. Generic Names of Three Principal Products/Services of the Company (as per monetary terms)

Turnover (Incl. Other Income)

7 2 9

Total Expenditure

8 2 4 1

Profit/(Loss) Before Tax

(7 5 1 2)

Profit/(Loss) After Tax

(5 0 7 7)

Earnings Per Share(1 0 1 . 5 4)

Dividend Rate (%)

N I L

Balance Sheet Abstract

Deferred Tax Assets

3 9 6 4

Item Code No. (ITC Code) Not ApplicableProduct Description Marketing-Financial Products and Services

Item Code No. (ITC Code) NilProduct Description Nil

Item Code No. (ITC Code) NilProduct Description Nil

SREI Money Mall Limited

176

Cash Flow StatementFor the year ended March, 31

(Amount in Rupees)

2005 2004

A. Cash Flow From Operating Activities

Net Profit/(Loss) before Tax (75,12,102) (28,25,674)

Adjustments for:

Depreciation 7,04,573 6,76,736

Preliminary Expenses written off 11,815 11,815

Loss on sale of Fixed Asset 3262 –

Operating Profit/(Loss) before Working Capital changes (67,92,452) (21,37,123)

Adjustments for:

(Increase)/Decrease in Receivables/others 25,74,295 (25,20,121)

Increase/(Decrease) in Trade Payables/others 23,96,420 (1,20,02,832)

Net Cash From Operating Activities (18,21,737) (1,66,60,076)

B. Cash Flow From Investing Activities

Purchase of Fixed Assets (23,157) (4,24,293)

Sale of Fixed Assets 15,000 17,500

Net Cash From Investing Activities (8,157) (4,06,793)

C. Cash Flow From Financing Activities

Increase/(Decrease) in Borrowings 18,43,194 1,69,28,000

Net Cash From Financing Activities 18,43,194 1,69,28,000

Net Increase/(Decrease) in Cash or Cash Equivalents 13,300 (1,38,869)

Cash and Cash Equivalents as on 01.04.2004 1,02,142 2,41,011

Cash and Cash Equivalents as on 31.03.2005 1,15,442 1,02,142

Notes:

1. The above Cash Flow Statement has been prepared under the ’Indirect Method’ as set out in the Accounting Standard 3

(AS 3) Cash Flow Statements issued by The Institute of Chartered Accountants of India.

2. Cash and Cash equivalents represents Cash in Hand and Balances with Bank.

For Chetan Chaturvedi & Co. On behalf of the Board

Chartered Accountants

A. Som Suneet K. Maheshwari Salil K. Gupta

Partner Director Chairman

Membership No. 6308

Place : Kolkata

Dated : 21st June, 2005

177

Directors Report

Your Directors have pleasure in presenting the Eleventh AnnualReport together with the Audited Accounts of your Company forthe year ended 31st March, 2005.

FINANCIAL RESULTS AND OPERATIONS(Amount in Rs.)

Year ended Year ended31st March, 31st March,

2005 2004

Income 47,58,150 25,12,222Expenditure 7,03,997 11,80,921Profit Before Tax 40,54,153 13,31,301Profit After Current Tax 40,54,153 13,31,301Provision for Deferred Tax – 3,31,321Profit After Tax carried forward to next year 40,54,153 9,99,980

During the year, your Company has earned a profit of Rs. 40,54,153/- as against a profit of Rs. 9,99,980/- earned in theprevious year.

Till date, your Company has made an investment of Rs. 5 lacs inClass B Units of MEDIUM AND SMALL INFRASTRUCTURE FUND(MASIF), and proposes to make a further investment of Rs. 55 lacsin Class A Units of MASIF, the Fund floated by your Company forinvestments in small and medium size projects in the infrastructuresector. MASIF has also received approvals for investment in theFund from Life Insurance Corporation of India, General InsuranceCorporation of India Limited, National Insurance Company Limitedand UCO Bank. During the year MASIF has invested Rs. 44 lacs inthe equity share capital of India Power Corporation Limited whichis setting up a Windfarm Power Project in the state of Karnataka.

Your Company is also acting as Investment Manager to IndiaGlobal Competitive Fund (IGCF), a fund launched by fellowsubsidiary company, Global Investment Trust Limited with anobject to assist Indian companies to expand their operations sothat they can achieve global size. IGCF is a close ended fund witha 10 year tenure and a corpus of Rs. 1000 crore of which Rs. 220crore has already been committed by various Banks andInstitutions.

Recently, your Company floated SREI Venture Capital Trust for thepurpose of raising resources by floating various schemes incompliance with the SEBI (Venture Capital Funds) Regulations,1996 to make available venture capital assistance to companies asmay be permissible under the SEBI (Venture Capital Funds)Regulations, 1996.

PARTICULARS OF EMPLOYEESNone of the employees of your Company are in receipt ofremuneration requiring disclosures pursuant to the provisions ofSection 217(2A) of the Companies Act, 1956 read with theCompanies (Particulars of Employees) Rules, 1975, as amended,

hence no such particulars are annexed.

PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTFLOWSince your Company is not running a manufacturing unit,requirements of disclosure regarding Conservation of Energy andTechnology Absorption are not applicable. However, yourCompany continues its endeavour to improve energy conservationand utilisation, safety and environment.

Your Company has not utilized or earned any foreign exchangeduring the year under review.

DIRECTORSMr. Chandrashekhar Damle and Mr. S. Rajagopal were appointedas Additional Directors of the Company with effect from 30thOctober, 2004 and 13th June, 2005 respectively. In terms of Article87 of the Articles of Association of your Company, Mr.Chandrashekhar Damle and Mr. S. Rajagopal will hold office asAdditional Directors up to the date of the ensuing Annual GeneralMeeting of the Company. Your Company has received individualnotices under Section 257 of the Companies Act, 1956 frommembers signifying their intention to move resolutions forappointment of Mr. Chandrashekhar Damle and Mr. S. Rajagopalas Directors of your Company.

Mr. P. K. Pandey, Director of the Company resigned from the Boardof Directors with effect from 30th October, 2004. The Board placeson record its deep appreciation for the valuable services renderedby Mr. P. K. Pandey during his tenure as Director of the Company.

In accordance with the provisions of the Companies Act, 1956 andpursuant to Article 96 of the Articles of Association of yourCompany, Dr. Satish C. Jha and Dr. Basudeb Sen, Directors, retireby rotation in the ensuing Annual General Meeting and beingeligible, offer themselves for re-appointment.

DIRECTORS RESPONSIBILITY STATEMENTIn terms of provisions of Section 217(2AA) of the Companies Act,1956 (Act), your directors confirm:

(i) that in the preparation of the annual accounts for the yearended 31st March, 2005, the applicable accounting standardshave been followed along with proper explanation relating tomaterial departures;

(ii) that the Directors have selected such accounting policies andapplied them consistently and made judgments and estimatesthat are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company at the end of theyear and of the profit of the Company for that year;

(iii) that the Directors have taken proper and sufficient care for themaintenance of adequate accounting records in accordancewith the provisions of this Act for safeguarding the assets ofthe Company and for preventing and detecting fraud and otherirregularities; and

Dear Shareholders,

DIRECTORS AUDITORSDr. Satish C. Jha - Chairman G. P. Agrawal & Co.Mr. S. Rajagopal Chartered AccountantsMr. K. N. BhandariMr. Hemant KanoriaDr. Basudeb SenMr. C. S. Damle

SREI Venture Capital Limited

178

Auditors Report

(iv) that the Directors have prepared the annual accounts for theyear ended 31st March, 2005 on a going concern basis.

AUDITORSM/s. G. P. Agrawal & Co, Chartered Accountants retire as Auditorsof your Company at the conclusion of the ensuing Annual GeneralMeeting and have confirmed their eligibility and willingness toaccept the office of the Auditors, if re-appointed.

SECRETARIAL COMPLIANCE REPORTPursuant to the proviso to Section 383A of the Companies Act,1956, a certificate from a Secretary in Whole time Practice inrespect of compliances by your Company with all the provisions ofthe Companies Act, 1956 is attached to this Report.

ACKNOWLEDGEMENTYour Directors wish to place on record their grateful appreciation

for the excellent support and co-operation received from theSecurities & Exchange Board of India (SEBI), General InsuranceCorporation of India Limited, Life Insurance Corporation of Indiaand UCO Bank along with other Investment Bankers, FinancialInstitutions, Insurance companies and all the Investors. YourDirectors also wish to place on record their deep appreciation tothe employees for their whole-hearted and dedicated services.

On behalf of the Board of Directors

Place : Kolkata Dr. Satish C. JhaDated : 13th June, 2005 Chairman

To the Members,

1. We have audited the attached Balance Sheet of SREI VentureCapital Limited, as at 31st March, 2005 and the relative Profit

and Loss Account and the Cash Flow Statement for the year

ended on that date, all of which we have signed under reference

to this report. These financial statements are the responsibility

of the management of the Company. Our responsibility is to

express an opinion on these financial statements based on our

audit.

2. We have conducted our audit in accordance with 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 misstatement. 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 (as

amended) issued by the Central Government of India in terms of

Section 227(4A) of The Companies Act, 1956 of India (the Act )

and on the basis of such checks as we considered appropriate

and according to the information and explanations given to us,

we set out in the Annexure a statement on the matters specified

in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in

paragraph 3 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 purposes of our audit.

(b) In our opinion, proper books of account as required by law

have been kept by the Company so far as appears from our

examination of those books.

(c ) The 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 the Profit and Loss

Account dealt with by this report have been prepared in

compliance with the applicable accounting standards

referred to in Section 211(3C) of the Act.

(e) On the basis of written representations received from the

directors, as on 31st March, 2005, and taken on record by

the Board of Directors of the Company, none of the

directors is disqualified as on 31st March, 2005 from being

appointed as a director in terms of clause (g) of sub-section

(1) of Section 274 of the Act;

(f) In our opinion and to the best of our information and

according to the explanations given to us, the Balance

Sheet, the Profit and Loss Account and the Cash Flow

Statement together with the Notes thereon and attached

thereto, give in the prescribed manner the information

required by the Act 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, 2005,

ii) in the case of the Profit & Loss Account, of the profit for

the year ended on that date, and

iii) In the case of the Cash Flow Statement, of the cash

flow for the year ended on that date.

For G. P. Agrawal & Co.Chartered Accountants

Sunita SarafPlace : Kolkata Partner

Dated : 13th June, 2005 Membership No. 60162

179

Annexure to the Auditors Report

Statement referred to in our report of even date to the members of SREI Venture Capital Limited on the accounts for the year ended

31 March, 2005.

i) The Company does not have any fixed assets. Therefore, the

provisions of clauses (i) (a) to (i) (c) of paragraph 4 are not

applicable to the Company.

ii) The Company does not have any inventories. Therefore, the

provisions of clauses (ii) (a) to (ii) (c) of paragraph 4 are not

applicable to the Company.

iii) a) The Company has not granted any loans, secured or

unsecured to companies, firms or other parties covered

in the register maintained under Section 301 of the Act.

b) As the Company has not granted any loans, secured or

unsecured, to companies, firms or other parties covered

in register maintained under Section 301 of the Act,

Clauses (iii)(b) to (iii)(d) of paragraph 4 of the said Order

are not applicable to the Company.

c) The Company has not taken any loans, secured or

unsecured from companies, firms or other parties

covered in the register maintained under Section 301 of

the Act.

d) As the Company has not taken any loans, secured or

unsecured, from companies, firms or other parties

covered in register maintained under Section 301 of the

Act, Clauses (iii)(f) to (iii)(g) of paragraph 4 of the said

Order are not applicable to the Company.

iv) On the basis of information and explanation given to us, we

are of the opinion that the Company has an adequate internal

control system commensurate with the size of the Company

and the nature of its business for the sale of services.

v) Based on the audit procedure applied by us and according to

information and explanations given to us, the Company has no

contracts or arrangements referred to in Section 301 of the

Act. Therefore, the provisions of Clauses (v)(a) and (v)(b) of

paragraph 4 are not applicable to the Company.

vi) The Company has not accepted any public deposit within the

meaning of Section 58A, 58AA or any other relevant provisions

of the Act and the rules framed thereunder.

vii) The provisions of clause (vii) relating to internal audit system

are not applicable to the Company.

viii) The provisions regarding maintenance of cost records under

Section 209(1)(d) of the Act are not applicable to the Company.

ix) a) According to the records of the Company, the Company

is generally regular in depositing undisputed statutory

dues including Provident Fund, Income tax, Service tax,

Cess and other statutory dues with the appropriate

authorities. As explained to us, the provisions of Investor

Education and Protection Fund, Employees State

Insurance, Sales Tax, Excise Duty, Wealth Tax and

Custom Duty are not applicable to the Company.

According to the information and explanations given to

us, no undisputed amounts payable in respect of the

aforesaid dues were outstanding as at 31st March, 2005

for a period of more than six months from the date of

becoming payable.

b) There is no amount payable in respect of the aforesaid

statutory dues that have not been deposited on account

of any dispute.

x) The Company has no accumulated losses and has not

incurred any cash losses during the financial year and in the

immediately preceding financial year.

xi) The Company has no dues of financial institution, bank or

debentureholders.

xii) The Company has not granted loans and advances on the

basis of security by way of pledge of shares, debentures or

other securities.

xiii) The provisions of any special statute applicable to Chit Fund or

Nidhi or Mutul Benefit Society are not applicable to the

Company.

xiv) The Company is not dealing or trading in shares, securities,

debentures or other investments. However, the investments

made by the Company have been held by the Company in its

own name.

xv) According to the records of the Company and the information

and explanations given to us, the Company has not given any

guarantee for loans taken by others from bank or financial

institutions.

xvi) According to the records of the Company, the Company has

neither obtained nor applied any term loans during the year.

xvii) According to the information and explanations given to us and

on an overall examination of the balance sheet of the

Company, we report that no funds raised on short term basis

have been used for long term purposes.

xviii) The Company has not made any preferential allotment of

shares to parties and companies covered in the register

maintained under Section 301 of the Act.

xix) The Company has not issued any debentures.

xx) The Company has not raised any moneys by public issues

during the period covered by our audit report.

xxi) In our opinion and according to the information and

explanation given to us, no fraud on or by the Company has

been noticed or reported during the year that causes the

financial statements materially misstated.

For G. P. Agrawal & Co.Chartered Accountants

Sunita SarafPlace : Kolkata Partner

Dated : 13th June, 2005 Membership No. 60162

SREI Venture Capital Limited

180

I have examined the registers, records, books and papers of SREIVenture Capital Limited (the Company) as required to bemaintained under the Companies Act, 1956 ( the Act ) and the rulesmade thereunder and also the provisions contained in theMemorandum and Articles of Association of the Company for thefinancial year ended on 31st March, 2005 (financial year). In myopinion and to the best of my information and according to theexplanations carried out by me and explanations furnished to meby the Company, its officers and agents, I certify that in respect ofthe aforesaid financial year :

1. The Company has kept and maintained all registers as statedin Annexure A to this certificate, as per the provisions of theAct and the rules made thereunder and all the entries thereinhave been duly recorded.

2. The Company has duly filed the forms and returns as stated inAnnexure B to this certificate, with the Registrar ofCompanies, Regional Director, Central Government, CompanyLaw Board or other authorities within the time prescribedunder the Act and the rules made thereunder except asotherwise stated.

3. The Company being a public limited company, comments arenot required.

4. The Board of Directors duly met FOUR times respectively on04.06.04, 28.07.04, 30.10.04 and 22.01.05, in respect of whichmeetings proper notices were given and the proceedingswere properly recorded and signed in the Minutes Bookmaintained for the purpose.

5. The Company has not closed its Register of Members duringthe financial year.

6. The Annual General Meeting for the financial year ended on31st March, 2004 was held on 28th July, 2004, after giving duenotice to the members of the Company and the resolutionspassed thereat were duly recorded in Minutes Bookmaintained for the purpose.

7. No extra-ordinary general meeting was held during thefinancial year.

8. The Company has not advanced any loans to its directors orpersons or firms or Companies referred to under Section 295of the Act.

9. The Company has not entered into any contracts falling withthe purview of Section 297 of the Act.

10. The Company has made necessary entries in the registermaintained under Section 301 of the Act.

11. As there were no instances falling within the purview ofSection 314 of the Act, the Company has not obtained anyapproval from the Board of directors, members or the CentralGovernment.

12. The Company has not issued any duplicate share certificatesduring the financial year.

13. i. The Company has delivered all the certificates lodged fortransfer in accordance with the provisions of the Act. Therewas no allotment/transmission of securities during thefinancial year.

ii. The Company has not deposited any amount in a separatebank account as no dividend was declared during thefinancial year.

iii. The Company was not required to post warrants to anymember of the Company as no dividend was declaredduring the financial year.

iv. There is no amount lying in unpaid dividend account,application money due for refund and there are nodeposits, debentures etc. as on 31st March, 2005.

v. The Company has duly complied with the requirements ofSection 217 of the Act.

14. The Board of Directors of the Company is duly constituted andthe appointment of directors, additional directors, alternatedirectors and directors to fill casual vacancies have been dulymade .

15. The Company has not appointed any Managing Director/Whole-time Director/Manager during the financial year.

16. The Company has not appointed any sole selling agentsduring the financial year.

17. The Company was not required to obtain any approvals of theCentral Government, Company Law Board, Regional Director,Registrar and/or such authorities prescribed under the variousprovisions of the Act, during the financial year.

18. The Directors have disclosed their interest in otherfirms/companies to the Board of Directors pursuant to theprovisions of the Act and the rules made there under.

19. The Company has not issued shares/debentures/othersecurities during the financial year.

20. The Company has not bought back any shares during thefinancial year.

21. The Company has not issued any preference shares orDebentures.

22. There were no transactions necessitating the Company tokeep in abeyance any rights to dividend, rights shares andbonus shares pending registration of transfer of shares.

23. The Company has not invited/accepted any deposits includingany unsecured loans falling within the purview of Section 58Aduring the financial year.

24. The borrowings made by the Company during the year iswithin the limits prescribed under Section 293(1)(d) of theCompanies Act, 1956 and necessary resolution has beenpassed in duly constituted Annual General Meeting.

25. The Company has not made any loans or investments or given

Compliance CertificateRegistration No. of the Company : 21 - 65722

Nominal Capital : Rs. 5,00,00,000/-

To The Members,

SREI Venture Capital Limited

181

guarantees or provided securities to other bodies corporateduring the financial year.

26. The Company has not altered the provisions of theMemorandum with respect of situation of the Company sregistered office from one State to another during the yearunder scrutiny.

27. The Company has not altered the provisions of theMemorandum with respect to the objects of the Companyduring the year under scrutiny.

28. The Company has not altered the provisions of theMemorandum with respect to name of the Company duringthe year under scrutiny.

29. The Company has not altered the provisions of theMemorandum with respect to share capital during the yearunder scrutiny.

30. The Company has not altered its Articles of Association during

the financial year.

31. There was no prosecution initiated against or show causenotices received by the Company, during the financial year foroffences under the Act.

32. The Company has not received any money as security from itsemployees during the financial year.

33 The Company has deposited both employee s and employer scontribution to Provident Fund with prescribed authoritiespursuant to Section 418 of the Act.

Babu Lal PatniPlace : Kolkata Company SecretaryDated : 13th June, 2005 C. P. No. : 1321

Annexure A

Sl.No. Particulars Under Section

01. Register of Members 15002. Directors Minute Book 19303. Shareholders Minute Book 19304. Register of Contracts (Part I) 30105. Register of Contracts (Part II) 30106. Register of Directors 30307. Register of Directors Shareholdings 30708. Register of Transfer 09. Register of Allotment

Annexure B

Forms and Returns as filed by the Company with Register of Companies Regional Director, Central Government or otherauthorities during the financial year ended 31st March, 2005: -

S.N. Form No./Return Filed Under For Date of filing Whether filed If delay in filing Section within prescribed whether requisite

Time additional fee paidYES/NO YES/NO

01. Balance Sheet as at 220 – 09.08.04 YES N.A.31.03.04

02. Annual Return made 159 – 09.08.04 YES N.A.up to 28.07.04

03. Compliance Certificate provision to 09.08.04 YES N.A. Section 383A(1)

04. Form No. 32 303 Changes in 23.11.04 YES N.A.dated 18.11.04 Directors

05. Form No. 29 264 Consent to 23.11.04 YES N.A.dated 30.10.04 act as Director

List of Registers maintained by the Company

SREI Venture Capital Limited

182

Balance Sheet As at March 31

Schedules ’1’ to ’7’ & ’11’ referred to above form an integral part of the Balance Sheet.

This is the Balance sheet referred to in our report of even date.

For G. P. Agrawal & Co. On behalf of the BoardChartered Accountants

Sunita Saraf Hemant Kanoria C. S. DamlePartner Director DirectorMembership No. 60162

Place : KolkataDated : 13th June, 2005

(Amount in Rupees)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholders’ Fund

Share Capital 1 25,00,000 25,00,000

Reserve & Surplus 2 44,83,900 4,29,747

69,83,900 29,29,747

Total 69,83,900 29,29,747

APPLICATION OF FUNDS

Investments 3 5,00,000 13,04,080

Current Assets, Loans & Advances

Current Assets 4 1,10,70,904 9,01,829

Loans & Advances 5 64,96,206 98,901

1,75,67,110 10,00,730

Less: Current Liabilities & Provisions

Current Liabilities 6 1,14,45,091 17,740

Net Current Assets 61,22,019 9,82,990

Miscellaneous Expenditure 7 3,61,881 6,42,677

(To the extent not written off or adjusted)

Total 69,83,900 29,29,747

Significant Accounting Policies &

Notes on Accounts 11

183

Profit and Loss AccountFor the year ended March 31

Schedules ’8’ to ’11’ referred to above form an integral part of the Profit and Loss Account.

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

For G. P. Agrawal & Co. On behalf of the BoardChartered Accountants

Sunita Saraf Hemant Kanoria C. S. DamlePartner Director DirectorMembership No. 60162

Place : KolkataDated : 13th June, 2005

(Amount in Rupees)

Schedule 2005 2004

INCOME

Income From Operations 8 47,05,657 24,75,520

Other Income 9 52,493 36,702

47,58,150 25,12,222

EXPENDITURE

Administrative & Other Expenses 10 4,23,201 9,00,125

Preliminary Expenses written off 16,217 16,217

Pre-operative Expenses written off 2,64,579 2,64,579

7,03,997 11,80,921

Profit Before Tax 40,54,153 13,31,301

Provision for Tax

Current Tax – –

Deferred Tax – 3,31,321

Profit After Tax 40,54,153 9,99,980

Add: Balance brought forward 4,29,747 (570,233)

Balance carried to the Balance Sheet 44,83,900 4,29,747

Basic & diluted earnings per share (Face Value - Rs.10/-) 16.22 4.00

(Refer Note - B 3 of Schedule - 11)

Significant Accounting Policies &

Notes on Accounts 11

SREI Venture Capital Limited

184

Schedules to the Balance Sheet As at March 31

Authorised50,00,000 Equity Shares of Rs.10/- each 5,00,00,000 5,00,00,000Issued, Subscribed & Paid-up2,50,000 Equity Shares of Rs.10/- each fully paid-up in cash 25,00,000 25,00,000

25,00,000 25,00,000

Note : The entire Share Capital is held by SREI Infrastructure Finance Ltd., the Holding Co. and its nominees.

(Amount in Rupees)

2005 2004

1 SHARE CAPITAL

Surplus as per Profit & Loss Account 44,83,900 4,29,747

2005 2004

2 RESERVES AND SURPLUS

Long Term InvestmentsQuoted, Fully Paid upIn Government Securities12.50% State Development Loan of Rs.1,00,000 each – 8,20,350Trade InvestmentsUnquoted, Fully paid up5000 units (Previous Year 5000 Units) of Rs.100/- each of Medium & Small Infrastructure Fund 5,00,000 5,00,000

5,00,000 13,20,350Less : Provision for Diminution in value of Investments – 16,270

5,00,000 13,04,080

2005 2004

3 INVESTMENTS

Sundry Debtors (Unsecured, Considered good)- Due for a period exceeding six months 9,87,760 6,50,172- Others 39,09,223 –

Cash and Bank Balances- Cash in Hand (As certified) 12,826 22,696- Balances with Scheduled Banks

- In Current Account 41,01,700 1,85,905- In Fixed Deposit Account 20,50,000 –

Other Current AssetsInterest Accrued on Investments/Fixed Deposit 9,395 43,056

1,10,70,904 9,01,829

2005 2004

4 CURRENT ASSETS

(Unsecured, Considered good)Advances recoverable in cash or in kind or for value to be received or pending adjustments 35,000 –

Application money 55,00,000 –

Tax Deducted at Source 9,61,206 98,90164,96,206 98,901

2005 2004

5 LOANS AND ADVANCES

185

Schedules to the Balance Sheet As at March 31

Schedules to the Profit and Loss Account For the year ended March 31

(Amount in Rupees)

2005 2004

6 CURRENT LIABILITIES

Sundry Creditors 11,510 17,740(Refer Note - 1 on Schedule - 10-B)Advance From Customer 1,07,01,101 –

Other Liabilities 7,32,480 –

1,14,45,091 17,740

2005 2004

7 MISCELLANEOUS EXPENDITURE

(To the extent not written off or adjusted)Preliminary Expenses 97,303 1,13,520Pre-operative Expenses 2,64,578 5,29,157

3,61,881 6,42,677

2005 2004

9 OTHER INCOME

Interest Received (Gross) (TDS Rs. 2,950/-, Previous year Rs. Nil) 27,993 36,702Liability No Longer Required Written back 14,500 –

Prior period items 10,000 –

52,493 36,702

2005 2004

8 INCOME FROM OPERATIONS

Management Fees (Gross) (TDS Rs. 2,31,416/-, Previous year Rs. 55,661/-) 42,05,657 19,75,520Trusteeship Fees (TDS Rs. 26,138/-,Previous year Rs. 2,550/-) 5,00,000 5,00,000

47,05,657 24,75,520

SREI Venture Capital Limited

2005 2004

10 ADMINISTRATIVE & OTHER EXPENSES

Salary & Allowances 48,203 1,27,827Employer’s Contribution to Provident Fund 2,976 7,951Travelling & Conveyance 2,32,074 3,70,510Professional Fees 51,620 3,02,240Directors Sitting Fees 36,000 33,000Filing Fees 2,500 3,800Audit Fees 5,510 3,240Rates & Taxes 1,830 2,500Car Hire Charges 20,595 11,797Printing & Stationery 2,377 1,500Subscription 1,510 –

Miscellaneous Expenses 13,926 4,990Loss on Sale of Investments (Net of provision Rs. 16,270/-, Previous year - Nil) 4,080 –

Prior Period Expenses – 14,500Provision for Diminution in value of Investment – 16,270

4,23,201 9,00,125

186

Schedules to the Balance Sheet and Profit & Loss Account

A. SIGNIFICANT ACCOUNTING POLICIES1. Basis of Accounting

The accounts are prepared under historical cost convention and are in accordance with the generally accepted accountingprinciples in India and the provisions of the Companies Act, 1956.

2. InvestmentsLong Term Investments are carried at cost . Provision for diminution is made to recognise a decline other than temporary, in the value of long term investments, script wise. Current Investments are valued at lower of cost or fair value, categorywise. Cost of Investments include acquisition cost such as brokerage, stamp duty, etc. value of investments individually.

3. Revenue Recognition All the income are accounted for on accrual basis.

4. ExpensesAll the expenses are accounted for on accrual basis.

5. Retirement BenefitsRetirement benefits are accounted for on accrual basis.

6. Miscellaneous ExpenditurePreliminary Expenditure are amortised over a period of ten years and Pre-operative Expenses are amortised over a periodof five years.

B. NOTES ON ACCOUNTS1. Amount due to Small Scale Industrial Undertakings – Nil (Previous Year Nil).

2. No Provision for Income Tax has been made as the income of the Company is exempted U/s 10 (23FB) of the Income Tax Act, 1961.

11 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS

Signatories to all foregoing Schedules 1 to 11 forming part of the Accounts.

For G. P. Agrawal & Co. On behalf of the BoardChartered Accountants

Sunita Saraf Hemant Kanoria C. S. DamlePartner Director DirectorMembership No. 60162

Place : KolkataDated : 13th June, 2005

3. The numerators and denominators used to calculate Basic/diluted earning per share:

2005 2004

a) Amount used as the numerator –Profit after tax – (A) (Rs.) 40,54,153 9,99,980

b) Basic/weighted average number of equity shares used as the denominator – (B) 2,50,000 2,50,000

c) Nominal value of equity shares (Rs.) 10 10d) Basic/diluted Earnings per share – (A/B) (Rs.) 16.22 4.00

4. Disclosure Pursuant to AS-18 On Related Party :Name of the related party & description of relationship:

Holding Company: SREI Infrastructure Finance Ltd.

Note: There is no transaction/balances with the related party.

5. Earnings and Expenditure in Foreign Currency – Rs. Nil (Previous Year Nil).

6. Previous year s figures have been regrouped and/or rearranged, wherever considered necessary.

187

Balance Sheet Abstract

SREI Venture Capital Limited

For G. P. Agrawal & Co. On behalf of the BoardChartered Accountants

Sunita Saraf Hemant Kanoria C. S. DamlePartner Director DirectorMembership No. 60162

Place : KolkataDated : 13th June, 2005

3 1 0 3

Registration No. State Code

Balance Sheet Date

I. Registration Details

INFORMATION PURSUANT TO PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956Balance Sheet Abstract and Company s General Business Profile

II. Capital Raised during the year (Amount in Rs. Thousands)

Total Liabilities*6 9 8 4

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

2 0 0 5

2 1

Net Current Assets6 1 2 2

Total Assets*6 9 8 4

Public IssueN I L

Right IssueN I L

Bonus IssueN I L

Private PlacementN I L

6 5 7 2 2

Paid-up CapitalSources of Funds

2 5 0 0

Unsecured LoansN I L

Reserves and Surplus4 4 8 4

Secured LoansN I L

Net Fixed AssetsApplication of Funds

N I LInvestments

5 0 0

Accumulated Losses

*net of current liabilities Rs. 1074 Thousands

N I L

Miscellaneous Expenditure3 6 2

IV. Performance of the Company (Amount in Rs. Thousands)

Item Code No. (ITC Code) N.A.Product Description N.A.

Item Code No. (ITC Code) N.A.Product Description N.A.

Item Code No. (ITC Code) N.A.Product Description N.A.

V. Generic Names of Three Principal Products/Services of the Company (As per monetary terms)

Turnover (incl. other income)4 7 5 8

Total Expenditure

7 0 4

Profit/(Loss) before Tax (+)(+ for Profit, – for Loss)

Profit/(Loss) before Tax (+)(+ for Profit, – for Loss)

4 0 5 4 4 0 5 4Earnings per share (in Rs.)

1 6 . 2 2Dividend Rate (%)

N I L

188

Cash Flow StatementFor the year ended March 31

For G. P. Agrawal & Co. On behalf of the BoardChartered Accountants

Sunita Saraf Hemant Kanoria C. S. DamlePartner Director DirectorMembership No. 60162

Place : KolkataDated : 13th June, 2005

A. Cash Flow From Operating Activities

Net Profit before tax and extra ordinary items 40,54,153 13,31,301

Adjustments for:

Preliminary Expenses written off 16,217 16,217

Pre-operative Expenses written off 2,64,579 2,64,579

Liabilities no longer required written back (14,500) –

Interest (27,993) (36,702)

Provision for dimunition in value of Investments – 16,270

Loss on sale of Investments 4,080 –

Prior period items (10,000) 2,32,383 14,500 2,74,864

Operating Profit before Working Capital changes 42,86,536 16,06,165

Adjustments for:

Trade & other receivable (97,81,811) (6,50,172)

Trade & other payable 1,14,41,851 16,60,040 2,160 (6,48,012)

Cash generated from operation 59,46,576 9,58,153

Prior perod items 10,000 (14,500)

Direct Taxes paid (8,62,305) (58,211)

Net Cash Flow From Operating Activities 50,94,271 8,85,442

B. Cash Flow From Investing Activities:

Purchase of Investments – (8,20,350)

Sale of Investments 8,00,000 –

Interest received 61,654 (6,354)

8,61,654 (8,26,704)

Net Increase/(decrease) in cash & cash equivalent 59,55,925 58,738

Opening cash & cash equivalents 2,08,601 1,49,863

Closing cash & cash equivalents 61,64,526 2,08,601

Notes:

1) The above Cash Flow Statement has been prepared under the "Indirect Method" as set out in the Accounting Standard - 3

(AS 3) Cash Flow Statement issued by The Institute of Chartered Accountants of India.

2) Figures in bracket represent cash outflow.

3) Cash and Cash equivalent at the end of the year consist of:

As at 31st As at 31st

March, 2005 March, 2004

a) Cash on hand 12,826 22,696

b) Balances with Banks in Current Account 41,01,700 1,85,905

c) Balances with Banks in Fixed Deposit Account 20,50,000 –

61,64,526 2,08,601

This is the Cash Flow Statement referred to in our report of even date.

(Amount in Rupees)

2005 2004

189

SREI Insurance Services Limited

Directors Report

The Board of Directors of your Company have pleasure in

presenting the Third Annual Report together with the Audited

Accounts of your Company for the year ended 31st March, 2005.

FINANCIAL RESULTS AND OPERATIONS(Amount in Rs.)

Year ended Year ended31st March, 31st March,

2005 2004

Income 74,98,473 11,05,659

Expenditure 86,04,636 11,00,726

Profit/(Loss) Before Tax (11,06,163) 4,933

Provision for Current Tax – 379

Profit/(Loss) After Current Tax (11,06,163) 4,554

Provision for Deferred Tax 3,54,828 1,770

Profit/(Loss) After Tax carried

forward to next year (7,51,335) 2,784

The year under review was the first full year after your Company

obtained its composite insurance broking licence from Insurance

Regulatory and Development Authority (IRDA). Through focused

marketing efforts, the income of your Company for the year under

review went up to Rs. 74.98 lacs from Rs. 11.06 lacs in the previous

year. However, in view of large establishment expenses, your

Company incurred a loss of Rs. 11,06,163/- as compared to a profit

of Rs. 4,554/- during the previous year. Your Company, being in the

process of developing the business has recruited a number of

experienced personnel and has opened offices at Kolkata, Delhi

and Mumbai. This developmental work has resulted in large

expenditure, thereby incurring deficit during the year under review.

FUTURE OUTLOOKSince your Company has gained valuable experience in the last two

years and has recruited a number of experienced insurance

professionals, it is quite optimistic about the future business

prospects. There are some regulatory changes also in the offing

which would bring positive impact on the brokerage structure in

fire and engineering segments of Non life insurance business.

Moreover, body corporate with a paid up capital upto Rs. 15 crores

will not be entitled to special discounts now available to them.

Your Board foresees a positive impact of these changes on

development and growth of insurance brokers in the country. The

increasing globalisation of the Indian economy is also helping to

widen the demand for new and innovative insurance covers, thus

creating a scope for brokers to meet the customised requirements

of the customers.

With more and more private insurers coming in the market and

widening the product range, tremendous business opportunities

are unfolding for the Insurance brokers. Your Company has

invested in creating infrastructure and developing personnel in

order to achieve a good business volume in the current year as well

as in future years through aggressive marketing and proper

customer service.

BUSINESS STRATEGYYour Company intends to create a niche for itself in the business of

construction and infrastructure project insurance in addition to

insurance of allied risks such as credit risk and liability risk which

are associated with such projects. Your Company also plans to

aggressively focus on Life Insurance and Reinsurance business in

Delhi and Mumbai as well as retail and corporate business in

Kolkata covering both Life and Non Life segments.

PARTICULARS OF EMPLOYEESNone of the employees of your Company are in receipt of

remuneration requiring disclosures pursuant to the provisions of

Section 217(2A) of the Companies Act, 1956 read with the

Companies (Particulars of Employees) Rules, 1975, hence no such

particulars are annexed.

PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTFLOWYour Company has no activity relating to Conservation of Energy

and Technology Absorption as stipulated in the Companies

(Disclosure of Particulars in the Report of Board of Directors) Rules,

1988.

During the year under review, your Company has earned

Rs. 6,61,310/- in foreign currency (Previous Year: Nil) and has not

utilized any foreign exchange.

DIRECTORSMr. R. N. Tripathi, Director of the Company was appointed as

Chairman of your Company on 24th May, 2005 to hold the office of

Chairman for three years till 23rd May, 2008.

Mr. Anjan Mandal resigned as Director of your Company with

effect from 24th May, 2005 and the Board places on record its

appreciation for the valuable services rendered by him during his

tenure as Director of your Company.

In accordance with the provisions of the Companies Act, 1956

and your Company s Articles of Association, Mr. Arun Kedia,

Director retires by rotation and being eligible, offers himself for

re-appointment.

DIRECTORS RESPONSIBILITY STATEMENTIn terms of provisions of Section 217(2AA) of the Companies Act,

1956 (Act), your directors confirm:

(i) that in the preparation of the annual accounts for the year

ended 31st March, 2005, the applicable accounting standards

have been followed along with proper explanation relating to

material departures;

Dear Shareholders,

DIRECTORS AUDITORS COMPANY SECRETARYMr. R. N. Tripathi - Chairman Singhi & Co. Mr. Sanjay ChaurasiaMr. Gopal Dikshit Chartered AccountantsMr. Arun Kedia

190

Auditors Report

(ii) that the directors have selected such accounting policies and

applied them consistently and made judgments and estimates

that are reasonable and prudent so as to give a true and fair

view of the state of affairs of the Company at the end of the

year and of the loss of the Company for that year;

(iii) that the directors have taken proper and sufficient care 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; and

(iv) that the directors have prepared the annual accounts for the

year ended 31st March, 2005 on a going concern basis.

AUDITORSM/s. Singhi & Co., Chartered Accountants, retire as Auditors of your

Company at the conclusion of the ensuing Annual General Meeting

and have confirmed their eligibility and willingness to accept the

office of Auditors, if re-appointed.

ACKNOWLEDGEMENTYour Directors wish to place on record their grateful appreciation

for the excellent support and co-operation received from the

Insurance Regulatory and Development Authority (IRDA), UTI Bank

Limited, various Insurance Companies, clients and other regulatory

authorities. Your Directors also wish to place on record their deep

appreciation to the employees for their whole-hearted and

dedicated services.

On behalf of the Board of Directors

Place : Kolkata R. N. TripathiDated : 25th May, 2005 Chairman

We have audited the annexed Balance Sheet of SREI InsuranceServices Limited as at 31st March, 2005, the Profit & Loss Account

and the Cash Flow Statement for the year ended on that date

annexed thereto. 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.

We have conducted our audit in accordance with 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

misstatement. 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.

As required by the Companies (Auditor s Report) Order, 2003 as

amended by Companies (Auditor s Report) (Amendment) Order,

2004 issued by the Central Government of India in terms of

sub-section (4A) of Section 227 of the Companies Act, 1956, we

enclose in the Annexure, a statement on the matters specified in

paragraphs 4 and 5 of the said Order.

Further to our comments in the Annexure referred to above, we

report that -

1. We have obtained all the information and explanations, which

to the best of our knowledge and belief were necessary for the

purposes of our audit;

2. In our opinion, proper books of account as required by law have

been kept by the Company so far as appears from our

examination of those books;

3. The Balance Sheet, Profit and Loss Account and Cash Flow

Statement dealt with by this report are in agreement with the

books of account;

4. In our opinion, the Profit and Loss Account, Balance Sheet and

Cash Flow Statement dealt with by this report comply with the

requirements of the Accounting Standards referred to in

sub-section (3C) of Section 211 of the Companies Act, 1956;

5. On the basis of the written representations received from the

Directors as on 31st March, 2005 and taken on record by the

Board of Directors, we report that none of the Directors is

disqualified as on 31st March, 2005 from being appointed as a

Director in terms of clause (g) of sub-section (1) of Section 274

of the Companies Act, 1956;

6. In our opinion and to the best of our information and according

to the explanations given to us, the said accounts read with

other Notes thereon 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:

a) In the case of the Balance Sheet, of the state of affairs of

the Company as at 31st March, 2005;

b) In the case of the Profit and Loss Account, of the loss for

the year ended on that date; and

c) In the case of Cash Flow Statement, of the cash flows for

the year ended on that date.

For Singhi & Co.Chartered Accountants

Rajiv SinghiPlace : Kolkata Partner

Dated : 24th May, 2005 Membership No. 53518

To the Members,

191

SREI Insurance Services Limited

Annexure to the Auditors Report

i) (a) The Company has maintained proper records showing fullparticulars including quantitative details and situation of itsfixed assets.

(b) The fixed assets have been physically verified by themanagement as per a based program adopted by theCompany. In our opinion, the frequency of verification isreasonable having regard to the size of the Company andthe nature of its assets. As per the information andexplanations given to us, no material discrepancies werenoticed on such verification.

(c) The Company has not disposed off substantial part of itsfixed assets during the year.

ii) Since the Company does not have any inventories, the clausesrelating to it are not applicable.

iii) (a) According to the information and explanations given to us,the Company has not granted any loans secured orunsecured to Companies, Firms or other parties covered inthe register maintained under Section 301 of theCompanies Act, 1956. Hence Clauses iii (b), (c) & (d) are notapplicable to the Company for the current year.

(b) As per the information furnished, the Company has nottaken any loan secured or unsecured from Companies,Firms or other parties covered in the Register maintainedunder Section 301 of the Companies Act, 1956. HenceClauses iii (f) & (g) of the Order are not applicable to theCompany for the current year.

iv) In our opinion and according to the information andexplanations given to us, there are adequate internal controlprocedures commensurate with the size of the Company andthe nature of its business for the purchase of inventory andfixed assets and for the sale of goods and services. Further onthe basis of our examinations of the books of account andaccording to the information and explanations given to us wehave not come across nor have we been informed of anyinstances of major weaknesses in the aforesaid internalcontrol system.

v) (a) Register in pursuance of Section 301 of the CompaniesAct, 1956 have been maintained by the Company.

(b) No transactions has been entered into during the currentyear which are required to be entered in the Register to bemaintained under Section 301 of the Companies Act, 1956.Hence this Clause is not applicable to the Company.

vi) The Company has not accepted any deposit during the yearfrom the public within the meaning of the provisions ofSection 58A and 58AA of the Companies Act, 1956 and rulesmade there under. According to the information andexplanations given to us, no order has been passed byCompany Law Board or National Company Law Tribunal orReserve Bank of India or any Tribunal on the Company.

vii) The Company has Internal Audit system commensurate withthe size and nature of the business of the Company.

viii) According to the information and explanations given to us,maintenance of cost records under Section 209 (1) (d) is not applicable to the Company.

ix) a) The Company has generally been regular in depositing

undisputed statutory dues including Provident Fund,Investor s Education and Protection Fund, EmployeesState Insurance, Income Tax, Sales Tax, Wealth Tax,Custom Duty, Excise Duty, Service Tax, Cess and any otherstatutory dues with the appropriate authorities during theyear.

b) As per information and explanations given to us, there areno disputed Income Tax etc. outstanding as on 31st March,2005.

x) As the Company has been registered for a period of less thanfive years, the related clause regarding accumulated lossesand cash loss are not applicable to the Company.

xi) Based on our audit procedures and on the basis of informationand explanations given by the management, we are of theopinion that the Company has not defaulted in the repaymentof dues to financial institutions, banks and debenture holders.

xii) According to the information and explanations given to us, theCompany has not granted loans and advances on the basis ofsecurity by way of pledge of shares, debentures and othersecurities.

xiii) The Company is not a Chit Fund / Nidhi / Mutual Benefit Fund/Society.

xiv) According to the information and explanations given to us, theCompany is not dealing or trading in shares, securities,debentures and other investments. However, the investmentsare held by the Company in its own name except for theexemption granted under Section 49 of the Companies Act,1956.

xv) According to the information and explanations given to us, theCompany has not given any guarantee for loans taken byothers from banks or financial institutions.

xvi) According to the information and explanations given to us, theCompany has not raised any term loan during the year.

xvii) The Company has not raised any short term or long term loanduring the year. Hence the relevant Clause is not applicable tothe Company for the current year.

xviii) The Company has not made any preferential allotment ofshares to parties or companies covered in the Registermaintained under Section 301 of the Companies Act, 1956during the year and hence the question of whether the price atwhich shares have been issued is prejudicial to the interest ofthe Company does not arise.

xix) The Company has not issued any debentures during the year.

xx) The Company has not raised any money by public issuesduring the year.

xxi) To the best of our knowledge and belief and according to theinformation and explanations given to us, no fraud on or by theCompany was noticed or reported during the year.

For Singhi & Co.Chartered Accountants

Rajiv SinghiPlace : Kolkata Partner

Dated : 24th May, 2005 Membership No. 53518

192

Balance Sheet As at March 31

Schedules referred to above form an integral part of the Accounts.

For Singhi & Co. On behalf of the BoardChartered Accountants

Rajiv Singhi R. N. Tripathi Gopal Dikshit Sanjay ChaurasiaPartner Chairman Director Company SecretaryMembership No. 53518

Place : KolkataDated : 24th May, 2005

(Amount in Rupees)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholders’ Fund

Share Capital 1 2,50,00,000 2,50,00,000

Reserves & Surplus 2 – 2,50,00,000 46,165 2,50,46,165

Deferred Tax – 1,770

2,50,00,000 2,50,47,935

APPLICATION OF FUNDS

Fixed Assets 3

Gross Block 65,500 27,000

Less: Depreciation 9,703 432

Net Block 55,797 26,568

Investments 4 64,29,000 90,47,000

Current Assets, Loans & Advances 5

Current Assets 54,49,972 65,98,300

Loans & Advances 1,21,89,889 91,34,547

1,76,39,861 1,57,32,847

Less: Current Liabilities & Provisions

Current Liabilities 6 4,06,086 6,480

4,06,086 1,72,33,776 6,480 1,57,26,367

Net Current Assets

Deferred Tax Asset 3,53,058 –

Miscellaneous Expenditure 7

Preliminary Expenses to the extent not written off or adjusted 2,23,200 2,48,000

Profit & Loss Account 7,05,170 –

2,50,00,000 2,50,47,935

Significant Accounting Policies and

Notes on Accounts 9

193

SREI Insurance Services Limited

Profit and Loss AccountFor the year ended March 31

Schedules referred to above form an integral part of the Accounts.

For Singhi & Co. On behalf of the BoardChartered Accountants

Rajiv Singhi R. N. Tripathi Gopal Dikshit Sanjay ChaurasiaPartner Chairman Director Company SecretaryMembership No. 53518

Place : KolkataDated : 24th May, 2005

(Amount in Rupees)

Schedule 2005 2004

INCOME

Insurance Commission 6,226,589 –

Professional Services 280,941 –

Interest on Fixed Deposit 311,820 284,337

(TDS Rs. 65,202/-, Previous Year - Rs. 57,643/-)

Interest on Investment in Government Bonds 650,873 818,272

(TDS Rs. 2,36,252/-, Previous Year - Rs. Nil)

Profit on Sale of Investments 28,250 3,050

7,498,473 1,105,659

EXPENDITURE

Administrative & Other Expenses 8 8,570,565 1,100,294

Depreciation 9,271 432

Miscellaneous Expenses written off 24,800 –

8,604,636 1,100,726

Profit/(Loss) Before Tax (1,106,163) 4,933

Provision for Current Taxation – 379

Profit/(Loss) After Current Tax (1,106,163) 4,554

Provision for Deferred Tax 354,828 1,770

Profit/(Loss) After Tax (751,335) 2,784

Balance brought forward from last period 46,165 43,381

Balance carried to Balance Sheet (705,170) 46,165

Significant Accounting Policies and

Notes on Accounts 9

194

Schedules to the Balance Sheet As at March 31

Authorised25,00,000 Equity Shares of Rs.10/- each 2,50,00,000 2,50,00,000Issued, Subscribed & Paid-up25,00,000 (Previous Year 25,00,000) Equity Shares of 2,50,00,000 2,50,00,000

Rs.10/- each fully paid-up in cash 2,50,00,000 2,50,00,000

Note : The entire Share Capital is held by SREI Infrastructure Finance Ltd., the Holding Co. and its nominees.

(Amount in Rupees)

2005 2004

1 SHARE CAPITAL

Fully paid up, Long Term - at cost

In Government/Government GuranteedSecurities, BondsQuoted10.65% Andhra Pradesh Power Finance Corpn Ltd. 1,00,000 15 83 16,35,000 90,47,000 8.25% West Bengal Infrastructure Development Corpn 1,00,000 27 – 27,54,000 –

8.40% Andhra Pradesh Power Generation Corpn 1,00,000 20 – 20,40,000 –

Total 64,29,000 90,47,000 Aggregate Book value of Quoted Investment 64,29,000 90,47,000 Aggregate Market value of Quoted Investment 64,74,250 90,88,500

Face Value Quantity (Nos.) Amount (Rs.)

(Rs.) 2005 2004 2005 2004

4 INVESTMENTS

Profit & Loss Account – 46,165

2005 2004

2 RESERVES AND SURPLUS

3 FIXED ASSETS

PARTICULARS GROSS BLOCK DEPRECIATION NET BLOCK

As at Addition As at Upto For the As at As at As at

31st March, during the 31st March, 31st March, year 31st March, 31st March, 31st March,

2004 year 2005 2004 2005 2005 2004

Computers 27,000 38,500 65,500 432 9,271 9,703 55,797 26,568

Total 27,000 38,500 65,500 432 9,271 9,703 55,797 26,568

Previous Year – 27,000 27,000 – 432 432 26,568

195

SREI Insurance Services Limited

Schedules to the Balance Sheet As at March 31

Current AssetsInterest accrued but not due 4,06,445 7,20,023Cash and Bank Balances

Cash In Hand 43,527 6,492With Scheduled Banks- In Current Account – 8,71,785- In Fixed Deposit Account (Under Lien with IRDA) 50,00,000 50,00,000

54,49,972 65,98,300Loans & Advances (Advance receivable in cash or in kind or for value to be received)Commission Receivable 18,16,638 –Security Deposit 89,50,000 89,50,000Advance Tax 8,115 8,115Other Advance 63,971 –Prepaid Expenses 83,333 1,25,000Tax Deducted at Source 12,67,832 51,432(Net of Provision for Income Tax - Rs. 25,584/-, Previous Year - Rs. 25,584/-)

1,21,89,889 91,34,547

(Amount in Rupees)

2005 2004

5 CURRENT ASSETS, LOANS AND ADVANCES

2005 2004

6 CURRENT LIABILITIES

Other Current Liabilities 4,06,086 6,4804,06,086 6,480

2005 2004

7 MISCELLANEOUS EXPENDITURE

(To the extent not written off or adjusted)Preliminary Expenses 2,23,200 2,48,000

2,23,200 2,48,000

2005 2004

8 ADMINISTRATIVE & OTHER EXPENSES

Salary & Allowances 54,58,583 6,71,952Employer Contribution to P.F. 3,59,419 37,176Travelling & Conveyance 8,73,617 1,46,390Car Running Expenses 12,16,787 –Telephone Expenses 2,19,841 8,655Professional Charges 1,25,551 32,230Printing & Stationery 21,295 5,120Director Sitting Fees 45,000 48,000Payment to Auditors

- Audit Fees 9,918 6,480- Certification Charges – 9,918 15,120 21,600

Rent, Rates and Taxes 12,410 23,020Postage & Telegram 962 –Repairs & Maintenance 6,575 –Bank Charges 1,643 101Filing Fees 1,000 15,000Fees & Subscription 1,30,467 90,600Business Promotion 79,998 –Miscellaneous Expenses 7,500 450

85,70,565 11,00,294

196

Schedules to the Balance Sheet and Profit & Loss Account

A. SIGNIFICANT ACCOUNTING POLICIES1. Basis of Accounting

The financial statements are prepared in accordance with generally accepted accounting principles in India and the provisions ofthe Companies Act, 1956. The Company follows the accrual method of accounting under historical cost convention.

2. Fixed Assets i) Fixed Assets are stated at their original cost of acquisition less accumulated depreciation.

ii) Depreciation on Fixed Assets has been provided on straight–line method at rates prescribed under Schedule XIV to theCompanies Act, 1956.

3. Investments Current Investments are valued at lower of Cost or Market value. All long-term investments are valued at cost . However, provisionfor diminution in the value of long term investments is made by the Company to recognise permanent decline, if any, in value ofinvestments individually.

4. Miscellaneous ExpenditurePreliminary expenses are being amortised in 10 equal installments.

5. Contingent LiabilitiesContingent Liabilities not provided for, if any are separately shown by way of a note in this schedule.

6. Retirement Benefits to EmployeesRetirement benefits to employees are provided on the basis of actuarial valuation.

9 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS

7. Tax on Incomei) Current Tax is the amount of tax payable on the taxable income for the year determined in accordance with the provisions of

the Income Tax Act, 1961.

ii) Deferred Tax is recognised on timing difference, being the difference between the taxable income and accounting income thatoriginate in one period and are capable of reversal in one or more subsequent periods. Deferred tax assets subject to theconsideration of prudence are recognised and carried forward only to the extent that there is a reasonable certainty thatsufficient future taxable income will be available against which such deferred tax assets can be realised.

B. NOTES ON ACCOUNTSi. There are no dues outstanding to small scale industrial undertakings as on the Balance Sheet date.

ii. As none of the employees have put in the requisite period of service for entitlement of retirement benefits, therefore, noprovision has been made.

iii. Earnings in Foreign Currency – Rs. 6,61,310/- (Previous Year Rs. Nil).

iv. The previous year s figures have been regrouped/ rearranged, wherever considered necessary.

v. Related Party TransactionsThe Company has the following related parties:

Holding Company Fellow Subsidiaries Key Management Personnel

SREI Infrastructure Finance Ltd. SREI Capital Markets Ltd. Mr. R. N. Tripathi, ChairmanSREI Forex Ltd. Mr. Gopal Dikshit, DirectorSREI Money Mall Ltd. Mr. Arun Kedia, DirectorSREI Insurance Agency & Broking Ltd. Mr. Anjan Mandal, DirectorSREI Venture Capital Ltd.Global Investment Trust Ltd.IIS International Infrastructure Services GmbhBengal SREI Infrastructure Development Ltd.

Summary of transactions with related parties: (Figures in Rs.)Holding Fellow Key Management

Company Subsidiaries Personnel

Rent Paid – 12,000/-* –(13,000/-)

Short term Advance - Received 7,00,000/- – –(50,000/-)

Outstanding at the year end Nil 89,50,000/-* –(Nil) (89,50,000/-)

* SREI Capital Markets Ltd. Previous year s figures are shown in bracket.

Signatories to Schedule 1 to 9.Schedules referred to above form an integral part of the Accounts.As per our report annexed.For Singhi & Co. On behalf of the BoardChartered Accountants

Rajiv Singhi R. N. Tripathi Gopal Dikshit Sanjay ChaurasiaPartner Chairman Director Company SecretaryMembership No. 53518Place : KolkataDated : 24th May, 2005

197

Balance Sheet Abstract

For Singhi & Co. On behalf of the BoardChartered Accountants

Rajiv Singhi R. N. Tripathi Gopal Dikshit Sanjay ChaurasiaPartner Chairman Director Company SecretaryMembership No. 53518

Place : KolkataDated : 24th May, 2005

3 1 0 3

Registration No. State Code

Balance Sheet Date

I. Registration Details

INFORMATION PURSUANT TO PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956Balance Sheet Abstract and Company s General Business Profile

II. Capital Raised during the year (Amount in Rs. Thousands)

Total Liabilities2 5 4 0 6

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

2 0 0 5

2 1

Net Current Assets1 7 2 3 4

Total Assets2 5 4 0 6

Public IssueN I L

Right IssueN I L

Bonus IssueN I L

Private PlacementN I L

9 5 0 1 9

Paid-up CapitalSources of Funds

2 5 0 0 0

Unsecured LoansN I L

Reserves and SurplusN I L

Secured LoansN I L

Net Fixed AssetsApplication of Funds

5 6Investments

6 4 2 9

Accumulated Losses7 0 5

Miscellaneous Expenditure2 2 3

Deferred Tax Asset3 5 3

IV. Performance of the Company (Amount in Rs. Thousands)

Item Code No. (ITC Code) N.A.Product Description N.A.

Item Code No. (ITC Code) N.A.Product Description N.A.

Item Code No. (ITC Code) N.A.Product Description N.A.

V. Generic Names of Three Principal Products/Services of the Company (As per monetary terms)

Turnover (incl. other income)7 4 9 8

Total Expenditure

8 6 0 5

Profit/(Loss) before Tax

(1 1 0 6)

Profit/(Loss) after Tax

(7 5 1)Earnings per share (in Rs.)

N I LDividend Rate (%)

N I L

SREI Insurance Services Limited

198

Cash Flow StatementFor the year ended March 31

A. Cash Flow From Operating Activities

Net Profit/(Loss) before tax (11,06,163) 4,933

Adjustments for:

Depreciation 9,271 432

Preliminary Expenses written off 24,800 –

Interest Income (9,62,693) (11,02,609)

Profit on sale of Investments (28,250) (3,050)

Operating Profit before Working Capital changes (20,63,035) (11,00,294)

Adjustments for:

(Increase)/Decrease in Receivables/others (18,64,526) 1,07,25,000

Increase/(Decrease) in Trades Payables/others 3,99,606 (14,158)

Cash generated from Operating activities (35,27,955) 96,10,548

Less: Direct Taxes Paid 11,90,816 85,131

Net Cash From Operating Activities (47,18,771) 95,25,417

B. Cash Flow From Investing Activities

Purchase of Fixed Assets (38,500) (27,000)

Purchase of Investments (47,94,000) (3,21,10,417)

Sale of Investments 74,40,250 2,30,66,467

Interest Received 12,76,271 3,82,586

Net Cash From Investing Activities 38,84,021 (86,88,364)

C. Cash Flow From Financing Activities

Net Increase/(Decrease) in Cash & Cash Equivalents (8,34,750) 8,37,053

Cash and Cash Equivalents as on 01.04.2004 58,78,277 50,41,224

Cash and Cash Equivalents as on 31.03.2005 50,43,527 58,78,277

Notes:1. The above Cash Flow Statement has been prepared under the ’Indirect Method’ as set out in the Accounting Standard 3

(AS 3) ’Cash Flow Statements’ issued by The Institute of Chartered Accountants of India.

2. Cash and Cash equivalents represents Cash in Hand and Balances with Bank.

(Amount in Rupees)

2005 2004

For Singhi & Co. On behalf of the BoardChartered Accountants

Rajiv Singhi R. N. Tripathi Gopal Dikshit Sanjay ChaurasiaPartner Chairman Director Company SecretaryMembership No. 53518

Place : KolkataDated : 24th May, 2005

199

Directors Report

Your Directors have pleasure in presenting the Tenth Annual

Report together with the Audited Accounts of your Company for

the year ended 31st March, 2005.

FINANCIAL RESULTS AND OPERATIONS(Amount in Rs.)

Year ended Year ended31st March, 2005 31st March, 2004

Income 3,01,873 30,000

Expenditure 32,032 26,443

Profit before Tax 2,69,841 3,557

Provision for Current Tax 1,02,209 2,244

Profit after Current Tax 1,67,632 1,313

Provision for Deferred Tax (3,610) (1,157)

Profit after Tax carried

forward to next year 1,71,242 2,470

During the year, your Company has earned an income of

Rs.3,01,873/- as against Rs.30,000/- in the previous year. The rise in

income was generated from trusteeship fees earned by the

Company from the business of trusteeship, which it commenced

during the year.

During the year under review, your Company floated a Private

Equity Fund in the name and style of India Global CompetitiveFund (IGCF) for the purpose of raising resources to make available

capital/financial assistance primarily to the companies/persons

either directly or through intermediate investment vehicles by way

of equity, loan or any other mode which have the potential for

providing high returns to the contributors. Your Company is the

Settler as well as the Trustee for the Fund.

Considering the growing opportunities in the area of trusteeship

and security agency, your Company has decided to explore the

business of trusteeship and security agency for various

securitisation transactions and acquire, hold and manage securities

and other assets as trustees.

Your Company was recently appointed as the Trustee to SREIVenture Capital Trust , a Trust settled by fellow subsidiary

Company, SREI Venture Capital Limited for the purpose of raising

resources by floating various schemes in compliance with the SEBI

(Venture Capital Funds) Regulations, 1996 to provide venture

capital assistance to companies as permitted under the SEBI

(Venture Capital Funds) Regulations, 1996.

DIVIDENDThe Board of Directors of your Company do not recommend any

dividend for this year.

PARTICULARS OF EMPLOYEESNone of the employees of your Company is in receipt of

remuneration requiring disclosures pursuant to the provisions of

Section 217(2A) of the Companies Act, 1956 read with the

Companies (Particulars of Employees) Rules, 1975 as amended,

hence no such particulars are annexed.

PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGOYour Company has no activities relating to conservation of energy

and technology absorption. Your Company has not utilized or

earned any foreign exchange during the year.

DIRECTORSMr. Anjan Mandal and Mr. Arun Kedia were appointed as Additional

Directors of your Company with effect from 8th December, 2004

and 7th March, 2005 respectively. Mr. P. K. Bhattacharjee and Mr.

C. S. Samal were also inducted on the Board of the Company as

Additional Directors with effect from 21st June, 2005. In terms of

Article 154 of the Articles of Association of the Company, Mr. Arun

Kedia, Mr. P. K. Bhattacharjee and Mr. C. S. Samal will hold the

office as Additional Directors upto the date of the ensuing Annual

General Meeting. The Company has received individual notices in

writing under Section 257 of the Companies Act, 1956 from

members of the Company proposing the appointment of Mr. Arun

Kedia, Mr. P. K. Bhattacharjee and Mr. C. S. Samal as Directors of

the Company.

Mr. K. C. Jain and Mr. P. K. Pandey resigned as Directors of your

Company with effect from 8th December, 2004 and 7th March,

2005 respectively while Mr. Anjan Mandal and Mr. K. K. Mohanty

resigned from the Board of your Company with effect from 21st

June, 2005. The Board places on record its appreciation for the

valuable services rendered by them during their tenure as Directors

of your Company.

DIRECTORS’ RESPONSIBILITY STATEMENTIn terms of provisions of Section 217(2AA) of the Companies Act,

1956 (Act), your directors confirm:

(i) that in the preparation of the annual accounts for the financial

year ended 31st March, 2005, the applicable accounting

standards have been followed along with proper explanation

relating to material departures;

(ii) that the Directors have selected such accounting policies and

applied them consistently and made judgments and estimates

that are reasonable and prudent so as to give a true and fair

view of the state of affairs of the Company at the end of the

financial year and of the profit of the Company for the year;

Dear Shareholders,

DIRECTORS AUDITORSMr. P. K. Bhattacharjee Chetan Chaturvedi & Co.Mr. C. S. Samal Chartered AccountantsMr. Arun Kedia

Global Investment Trust Ltd.

200

Auditors Report

(iii) that the Directors have taken proper and sufficient care 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; and

(iv) that the Directors have prepared the annual accounts for the

financial year ended 31st March, 2005 on a going concern

basis.

AUDITORSM/s. Chetan Chaturvedi & Co., Chartered Accountants retire as

Auditors of your Company at the conclusion of the ensuing Annual

General Meeting and have confirmed their eligibility and

willingness to accept the office of Auditors, if re-appointed.

ACKNOWLEDGEMENTYour Directors express their gratitude for the continued co-

operation and support received from IDBI Bank, Allahabad Bank

and the holding Company, SREI Infrastructure Finance Limited.

On behalf of the Board of Directors

Place : Kolkata P. K. Bhattacharjee Arun KediaDated : 21st June, 2005 Director Director

1. We have audited the attached Balance Sheet of Global

Investment Trust Limited, as at 31st March, 2005 and the

relative Profit and Loss Account and the Cash Flow Statement

for the year ended on that date, all of which we have signed

under reference to this report. These financial statements are

the responsibility of the management of the Company. Our

responsibility is to express an opinion on these financial

statements based on our audit.

2. We have conducted our audit in accordance with 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 misstatement. 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 of India (the Act ) and on

the basis of such checks as we considered appropriate and

according to the information and explanations given to us, we

set out in the Annexure a statement on the matters specified in

paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in

paragraph 3 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 purposes of our audit.

(b) In our opinion, proper books of account as required by law

have been kept by the Company so far as appears from our

examination of those books.

(c )The Balance Sheet and Profit and Loss Account and the Cash

Flow Statement dealt with by this report are in agreement

with the books of account.

(d) In our opinion, the Balance Sheet and the Profit and Loss

Account dealt with by this report have been prepared in

compliance with the applicable accounting standards

referred to in Section 211 (3C) of the Act.

(e) On the basis of written representations received from the

directors, as on 31st March, 2005, and taken on record by

the Board of Directors of the Company, none of the directors

is disqualified as on 31st March, 2005 from being appointed

as a director in terms of clause (g) of sub-section (1) of

Section 274 of the Act;

(f) In our opinion and to the best of our information and

according to the explanations given to us, the Balance Sheet,

the Profit and Loss Account and the Cash Flow Statement

together with the Notes thereon and attached thereto, give

in the prescribed manner the information required by the Act

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, 2005;

ii) in the case of the Profit & Loss Account, of the profit for

the year ended on that date; and

iii) In the case of the Cash Flow Statement, of the cash flow

for the year ended on that date.

For Chetan Chaturvedi & Co.

Chartered Accountants

A. Som

Place : Kolkata Partner

Dated : 21st June, 2005 Membership No. 6308

To The Members,

201

Statement referred to in our report of even date to the members of Global Investment Trust Limited on the accounts for the year ended 31 March, 2005.

Annexure to the Auditors Report

(i) The Company does not have any fixed assets. Therefore, the

provisions of clauses (i) (a) to (i) (c) of paragraph 4 are not

applicable to the Company.

(ii) The Company does not have any inventories. Therefore, the

provisions of clauses (ii) (a) to (ii) (c) of paragraph 4 are not

applicable to the Company.

iii) a) The Company has not granted any loans, secured or

unsecured to companies, firms or other parties covered in

the register maintained under Section 301 of the Act.

b) As the Company has not granted any loans, secured or

unsecured, to companies, firms or other parties covered in

register maintained under Section 301 of the Act, clauses

(iii)(b) to (iii)(d) of paragraph 4 of the said Order are not

applicable to the Company.

c) The Company has not taken any loans, secured or

unsecured from companies, firms or other parties covered

in the register maintained under Section 301 of the Act.

d) As the Company has not taken any loans, secured or

unsecured, from companies, firms or other parties

covered in register maintained under Section 301 of the

Act, clauses (iii)(f) to (iii)(g) of paragraph 4 of the said Order

are not applicable to the Company.

(iv) On the basis of information and explanation given to us, we

are of the opinion that the Company has an adequate internal

control system commensurate with the size of the Company

and the nature of its business for the sale of services.

v) Based on the audit procedure applied by us and according to

information and explanations given to us, the Company has

no contracts or arrangements referred to in Section 301 of

the Act. Therefore, the provisions of Clauses (v)(a) and (v)(b)

of paragraph 4 are not applicable to the Company.

(vi) The Company has not accepted any public deposit within the

meaning of Section 58A, 58AA or any other relevant

provisions of the Act and the rules framed thereunder.

(vii) The provisions of clause (vii) relating to internal audit system

are not applicable to the Company.

(viii) The provisions regarding maintenance of cost records under

Section 209 (1) (d) of the Act are not applicable to the

Company.

(ix) a) According to the records of the Company, the Company is

regular in depositing undisputed statutory dues including

Provident Fund, Income tax, Cess and other statutory dues

with the appropriate authorities. As explained to us, the

provisions of Investor Education and Protection fund,

Employees State Insurance, Sales tax, Excise duty,

Wealth Tax, Service tax and Custom duty are not

applicable to the Company. According to the information

and explanations given to us, no undisputed amounts

payable in respect of the aforesaid dues were outstanding

as at 31st March, 2005 for a period of more than six

months from the date of becoming payable.

b) There is no amount payable in respect of the aforesaid

statutory dues that have not been deposited on account of

any dispute.

(x) The Company has no accumulated losses and has not

incurred any cash losses during the financial year and in the

immediately preceding financial year.

(xi) The Company has no dues to financial institution, bank or

debenture holders.

(xii) The Company has not granted loans and advances on the

basis of security by way of pledge of shares, debentures or

other securities.

(xiii) The provisions of any special statute applicable to Chit Fund

or nidhi or mutul benefit society are not applicable to the

Company.

(xiv) The Company is not dealing or trading in shares, securities,

debentures or other investments.

(xv) According to the records of the Company and the information

and explanations given to us, the Company has not given any

guarantee for loans taken by others from bank or financial

institutions.

(xvi) According to the records of the Company, the Company has

neither obtained nor applied any term loans during the year.

(xvii) According to the information and explanations given to us

and on an overall examination of the balance sheet of the

Company, we report that no funds raised on short term basis

have been used for long term purposes.

(xviii) The Company has not made any preferential allotment of

shares to parties and companies covered in the register

maintained under Section 301 of the Act.

(xix) The Company has not issued any debentures.

(xx) The Company has not raised any moneys by public issues

during the period covered by our audit report.

(xxi) In our opinion and according to the information and

explanation given to us, no fraud on or by the Company has

been noticed or reported during the year that causes the

financial statements materially misstated.

For Chetan Chaturvedi & Co.

Chartered Accountants

A. Som

Place : Kolkata Partner

Dated : 21st June, 2005 Membership No. 6308

Global Investment Trust Ltd.

202

Balance Sheet As at March, 31

Schedules referred to above form an integral part of the Accounts.

For Chetan Chaturvedi & Co. On behalf of the Board

Chartered Accountants

A. Som Arun Kedia P. K. Bhattacharjee

Partner Director Director

Membership No. 6308

Place : Kolkata

Dated : 21st June, 2005

(Amount in Rupees)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholders’ Fund

Share Capital 1 5,00,000 5,00,000

Reserves & Surplus 1,84,016 6,84,016 12,774 5,12,774

Deferred Tax 3,189 6,799

6,87,205 5,19,573

APPLICATION OF FUNDS

Current Assets, Loans & Advances

Current Assets 2 7,86,564 4,83,353

Loans & Advances 3 28,899 3,216

8,15,463 4,86,569

Less: Current Liabilities & Provision

Current Liabilities & Provisions 4 1,66,249 19,214

1,66,249 19,214

Net Current Assets 6,49,214 4,67,355

Miscellaneous Expenditure 5 37,991 52,218

(To the extent not written off or adjusted)

6,87,205 5,19,573

Significant Accounting Policies and Notes on Accounts 7

203

Profit and Loss AccountFor the year ended March, 31

Schedules referred to above form an integral part of the Accounts.

For Chetan Chaturvedi & Co. On behalf of the Board

Chartered Accountants

A. Som Arun Kedia P. K. Bhattacharjee

Partner Director Director

Membership No. 6308

Place : Kolkata

Dated : 21st June, 2005

(Amount in Rupees)

Schedule 2005 2004

INCOME

Interest on Fixed Deposit 1,873 –

Other Income – 30,000

Trusteeship fee 3,00,000 –

3,01,873 30,000

EXPENDITURE

Administrative & Other Expenses 6 17,805 12,216

Preliminary Expenses written off 4,752 4,752

Preoperative Expenses written off 9,475 9,475

32,032 26,443

Profit Before Tax 2,69,841 3,557

Provision for Current Taxation 1,02,209 2,244

Profit After Current Taxation 1,67,632 1,313

Provision for Deferred Tax (3,610) (1,157)

Profit After Tax 1,71,242 2,470

Add : Profit Brought Forward From Last Year 12,774 10,304

Profit Carried Forward to Balance Sheet 1,84,016 12,774

Significant Accounting Policies and Notes on Accounts 7

Global Investment Trust Ltd.

204

Schedules to the Balance Sheet As at March, 31

Authorised

10,00,000 Equity Shares of Rs.10/- each 1,00,00,000 1,00,00,000

Issued, Subscribed & Paid-up

50,000 (Previous Year 50,000) Equity Shares of Rs.10/- each 5,00,000 5,00,000

fully paid-up in cash

5,00,000 5,00,000

Note : The entire Share Capital is held by SREI Infrastructure Finance Ltd., the Holding Co. and its nominees.

(Amount in Rupees)

2005 2004

1 SHARE CAPITAL

Sundry Debtors (Unsecured, considered good) 3,14,917 –

Cash and Bank Balances

Cash In Hand 37,460 4,460

Balances with Scheduled Banks in Current Accounts 4,34,187 78,893

Security Deposit – 4,00,000

7,86,564 4,83,353

2005 2004

2 CURRENT ASSETS

(Unsecured, considered good)

Advance recoverable in cash or in kind or for value to be received

or pending adjustments

Other Advance 10,000 –

Advance Tax 3,216 1,678

Tax Deducted at Source 15,683 1,538

28,899 3,216

2005 2004

3 LOANS & ADVANCES

Other Liabilities 58,406 13,580

Provision for Taxation 1,07,843 5,634

1,66,249 19,214

2005 2004

4 CURRENT LIABILITIES

(To the extent not written off or adjusted)

Preliminary Expenses 28,514 33,266

Preoperative Expenses 9,477 18,952

37,991 52,218

2005 2004

5 MISCELLANEOUS EXPENDITURE

205

Schedules to the Profit & Loss AccountFor the year ended March, 31

Filing Fees 2,000 1,500

Bank Charges 199 111

General Charges 300 –

Audit Fees 3,306 1,080

Professional Fees – 525

Rent 12,000 9,000

17,805 12,216

(Amount in Rupees)

2005 2004

6 ADMINISTRATIVE & OTHER EXPENSES

Schedules to the Balance Sheet and Profit & Loss Account7 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS

A. SIGNIFICANT ACCOUNTING POLICIES1. Basis of Accounting

The Company follows the accrual method of accounting under historical cost convention.

2. Recognition of Income & ExpenditureAll Income & Expenditure are accounted on accrual basis except as otherwise stated.

3. TaxationTax expenses for the year comprises of current tax expenses and deferred tax expenses. Current tax is measured at theamount expected to be paid to the taxation authorities using the applicable tax rates and tax laws. Deferred tax assets andliabilities are measured using the tax rates and tax laws that have been enacted or substantially enacted by the BalanceSheet date.

4. Miscellaneous ExpenditurePreliminary Expenditure are amortised over a period of ten years & Pre-operative expenses are amortised over a period offive years.

5. Contingent LiabilitiesContingent liabilities not provided for, if any are separately shown by way of a note in this Schedule.

B. Notes on Accountsi. The requirement of Para 4C & 4D of Schedule VI to the Companies Act, 1956 are not applicable to the Company.

ii. There are no dues outstanding to small scale industrial undertakings as on the Balance Sheet date.

iii. Earnings and Expenditure in Foreign Currency - Rs. NIL.

iv. Previous year’s figures have been regrouped or rearranged, wherever found necessary.

v. The numerators and denominators used to calculate the Basic/ diluted earnings per share:

2005 2004

a) Amount used as the numerator Profit after Tax (A) (Rs.) 171,242 2,470

b) Basic/weighted average number of Equity Shares used as the denominator (B) 50,000 50,000

c) Nominal value of Equity Share (C) (Rs.) 10 10

d) Basic/diluted Earnings per share (A/B) (Rs.) 3.42 0.05

vi. Disclosure pursuant to AS-18 on Related Party:Name of the Related Party & description of relationship:Holding Company: SREI Infrastructure Finance Ltd.There is no transaction/ balances with the related party.

For Chetan Chaturvedi & Co. On behalf of the BoardChartered Accountants

A. Som Arun Kedia P. K. BhattacharjeePartner Director DirectorMembership No. 6308

Place : KolkataDated : 21st June, 2005

Global Investment Trust Ltd.

206

Public IssueN I L

N I L

Bonus Issue

N I L

Accumulated Losses

Right IssueN I L

Private Placement

3 1 0 3

Registration No. State Code

Balance Sheet Date

I. Registration Details

INFORMATION PURSUANT TO PART IV OF SCHEDULE VI TO THE COMPANIES ACT, 1956Balance Sheet Abstract And Company’s General Business Profile

II. Capital Raised during the year (Amount in Rs. Thousands)

Total Liabilities

8 5 3

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

2 0 0 5

2 1

Net Current Assets

6 4 9

Total Assets

8 5 3

7 1 6 7 0

Paid-up CapitalSources of Funds

5 0 0

Reserves and Surplus

1 8 4

Secured Loans

N I L

Unsecured Loans

N I L

Deferred Tax Liability

3

Net Fixed AssetsApplication of Funds

N I L

Investments

N I L

Miscellaneous Expenditure

3 8

N I L

IV. Performance of the Company (Amount in Rs. Thousands)

Item Code No. (ITC Code) Not ApplicableProduct Description Not Applicable

Item Code No. (ITC Code) Not ApplicableProduct Description Not Applicable

Item Code No. (ITC Code) Not ApplicableProduct Description Not Applicable

V. Generic Names of Three Principal Products/Services of the Company (as per monetary terms)

Turnover

3 0 2

Total Expenditure

3 2

Profit/(Loss) Before Tax

2 7 0

Profit/(Loss) After Tax

1 7 1

Earnings per share (in Rs.)3 . 4 2

Dividend Rate (%)

N I L

Balance Sheet Abstract

For Chetan Chaturvedi & Co. On behalf of the BoardChartered Accountants

A. Som Arun Kedia P. K. BhattacharjeePartner Director DirectorMembership No. 6308

Place : KolkataDated : 21st June, 2005

207

Cash Flow StatementFor the year ended March, 31

(Amount in Rupees)

2005 2004

A. Cash Flow From Operating Activities

Net Profit/(Loss) before tax 2,69,841 3,557

Adjustments for:

Preliminary Expenses written off 4,752 4,752

Pre-operative Expenses written off 9,475 9,475

Operating Profit before Working Capital changes 2,84,068 17,784

Adjustments for:

(Increase)/Decrease in Receivables/others 75,083 (4,00,000)

Increase/(Decrease) in Trades Payables/others 44,826 –

Cash generated from Operating activities 4,03,977 (3,82,216)

Less: Direct Taxes Paid 15,683 2,286

Net Cash From Operating Activities 3,88,294 (3,84,502)

Net Increase/(Decrease) in Cash & Cash Equivalents 3,88,294 (3,84,502)

Cash and Cash Equivalents as on 01.04.2004 83,353 4,67,855

Cash and Cash Equivalents as on 31.03.2005 4,71,647 83,353

Notes:

1. The above Cash Flow Statement has been prepared under the ’Indirect Method’ as set out in the Accounting Standard 3

(AS 3) ’Cash Flow Statements’ issued by The Institute of Chartered Accountants of India.

2. Cash and Cash equivalents represents Cash in Hand and Balances with Bank.

For Chetan Chaturvedi & Co. On behalf of the BoardChartered Accountants

A. Som Arun Kedia P. K. BhattacharjeePartner Director DirectorMembership No. 6308

Place : KolkataDated : 21st June, 2005

Global Investment Trust Ltd.

208

Directors Report

The Board of Directors of your Company take pleasure inpresenting the Second Annual Report together with the AuditedAccounts of your Company for the Financial Year ended 31stMarch, 2005.

FINANCIAL RESULTS(Euro)

Year ended Period ended31st March, 31st March,

2005 2004

Sales 50.000,00 0,00Other operating income 138,00 0,00Other operating expenses 62.594,89 6.325,04Interest income 14.862,56 0,00Profit / (Loss) from ordinary operations 2.405,67 (6.325,04)Loss carried forward (6.352,04) 0,00Accumulated deficit (3.919,37) (6.325,04)

RESULTS OF OPERATIONSDuring the year under review, your Company has earned a profit ofEuro 2.405,67 as against a loss of Euro 6.325,04 in the previousperiod. The subcribed Share capital of your Company wasaugmented by Euro 1.475.000 during the year under review.

Your Company is in its initial years of operations and the mainthrust of your Company has been in making inroads into theGerman market. Your Directors are confident of reaping therewards of its efforts in the coming year of its operations.

DIVIDENDThe Directors do not recommend any dividend for the FinancialYear ended 31st March, 2005.

SHARE CAPITALThe subscribed Share capital of your Company increased from Euro25.000 to Euro 1.500.000 during the year. Your Company continuesto be a subsidiary of SREI Infrastructure Finance Limited.

DIRECTORSDuring the period under review, Dr. Stefan Kinnemann and Mr.Hemant Kanoria held the office of Managing Directors of yourCompany.

AUDITORSDr. Glade, Konig und Partner GmbH, Auditors of your Company forthe year under review have submitted their Report on the FinancialYear 2004-05 and have expressed their willingness to be re-appointed as Auditors.

ACKNOWLEDGEMENTYour Directors wish to place on record their appreciation andacknowledge with gratitude the support and cooperation extendedby various clients, agencies, vendors, banks, the holding Companyand statutory authorities and look forward to their continuedsupport.

By order of the Board

Hemant KanoriaDated: 17th June, 2005 Managing Director

Dear Members,

DIRECTORS AUDITORSDr. Stefan Georg Friedrich Kinnemann - Managing Director Dr. Glade, Konig und Partner GmbHMr. Hemant Kanoria - Managing Director

Auditors ReportWe have audited the annual financial statements, together with thebookkeeping system and the management report of IISInternational Infrastructure Services GmbH, Bonn, for the businessyear from 01.04.2004 to 31.03.2005. The maintenance of the booksand the records and the preparation of the annual financialstatements are the responsibility of the Company s management.Our responsibility is to express an opinion whether the annualfinancial statements are in accordance with International FinancialReporting Standards.

We conducted our audit of the annual financial statements inaccordance with Article 317 HGB ( German Commercial Code )and the generally accepted standards for the audit of financialstatements promulgated by the Institut der Wirtschaftsprufer inDeutschland (IDW). Those standards require that we plan andperform the audit such that misstatements materially affecting thepresentation of the net assets, financial position and results ofoperations in the annual financial statements in accordance withprinciples of proper accounting are detected with reasonableassurance. Knowledge of the business activities and the economicand legal environment of the Company and evaluations of possible

misstatements are taken into account in the determination of auditprocedures. The effectiveness of the internal control system andthe evidence supporting the disclosures in the books and recordsand the annual financial statements are examined primarily on atest basis within the framework of the audit. The audit includesassessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overallpresentation of the annual financial statements. We believe thatour audit provides a reasonable basis for our opinion.

In our opinion, the annual financial statements give a true and fairview of the net assets, financial position, results of operations andcash-flows of the Company in accordance with IAS/IFRS.

Dr. Glade, Konig und Partner GmbHWirtschaftsprufungsgesellschaft

Steuerberatungsgesellschaft

(Dr. Hans-Joachim Glade)Neuss, den 17.06.2005 Wirtschaftsprufer

209

Balance Sheet per 31.03.2005

Notes to the Financial Statements 2004/2005:GenerallyThe financial statements of IIS International Infrastructure Services GmbH, Bonn/Germany are based on the German financialstatements which were prepared under German Generally Accepted Accounting Principles (GAAP) and were transformedaccording to International Financial Reporting Standards (IAS/IFRS).

The Company was founded on 17.09.2003 before notary Dr. Piehler in Cologne, Germany. The year 2004/2005 is the first fullreporting period of 12 months.

Nature and purpose of the Company s business is leasing and hiring out of movable property, especially for infrastructure projectsand consulting services in Germany and other countries. In 2004/2005 the activities are the foundation of 2 participations and onecommission transaction.

The subscribed capital of the Company amounts to 1.500.000,00. The subscribed capital was fully paid into the Company by theshareholders per 31.03.2005 which are:

(Amount in Euro)

SREI Infrastructure Finance Ltd., India 1.025.000,00MBCV Holding Ltd., Mauritius 250.000,00Eternity Venture Pty Ltd., Singapore 224.000,00Dr. Kinnemann, Germany 1.000,00

1.500.000,00The subscribed capital developed in 2004/2005:01.04.2004 25.000,00Capital increase 1.475.000,0031.03.2005 1.500.000,00

Differences between payments made by the shareholders and the capital increase are bank fees and are included in the profit andloss statement in other cost.

AssetsSubsidiaries show the 90% participation in the closed joint-stock Company ZAO SREI Leasing in Moscow/Russian Federation.

Associates show the 15% participation in Aermid Srei Health Care Finance Ltd. in London/UK of 36.321,71 and a paid preferencecapital of 671.754,57.

(Amount in Euro)

ASSETS 31.03.2005 31.03.2004

A. Fixed AssetsI. Financial Investments

1. Subsidiaries 750.893,82 0,002. Associates 708.076,28 1.458.970,10 0,00

B. Current AssetsI. Accounts receivable

and other assets1. Trade debtors 50.000,00 0,002. Other receivables 6.122,23 56.122,23 689,22

II. Cash at banks 9.488,30 25.032,6065.610,53 25.721,82

1.524.580,63 25.721,82

LIABILITIES AND 31.03.2005 31.03.2004SHAREHOLDERS EQUITY

A. Shareholders EquityI. Subscribed capital 1.500.000,00 25.000,00II. Retained earnings/

accumulated deficit (3.919,37) (6.325,04)1.496.080,63 18.674,96

B. Liabilities1. Trade accounts

payable 0,00 4.996,862. Other liabilities and

accrued expenses 28.500,00 2.050,0028.500,00 7.046,86

1.524.580,63 25.721,82

Profit and Loss Account from 01.04.2004 to 31.03.2005

1. Sales 50.000,00 0,002. Other operating income 138,00 0,003. Other operating expenses (62.594,89) (6.325,04)4. Interest income 14.862,56 0,005. Profit/Loss from ordinary operations 2.405,67 (6.325,04)6. Loss carry forward (6.325,04) 0,007. Accumulated deficit (3.919,37) (6.325,04)

(Amount in Euro)

2005 2004

IIS International Infrastructure Services GmbH

210

IIS International Infrastructure Services GmbH

(gez. Dr. Stefan Kinnemann) (gez. Hemant Kanoria)Bonn, 06.06.2005 - Geschaftsfuhrer - - Geschaftsfuhrer -

Notes to the Financial Statements 2004/2005: (Contd.)

Both, subsidiaries and associates are capitalized under the cost method. Cost include capital injections and legal and advisory costconnected with the legal foundation of the participations (Moscow 9.893,82; London 14.834,82).

The capital injections were paid in local currency (British Pound, Russian Rubel) and converted into with the exchange rate ofthe date of the capital injection. Per 31.03.2005 no currency translation adjustment was made.

Trade debtors of 50.000,00 are capitalized at their nominal value. Other receivables include only tax refunds. Cash at banks area current bank account in at Deutsche Bank AG with the nominal value per 31.03.2005.

LiabilitiesLiabilities are valued at their nominal value. The amounts recognised as accrued expenses are the best estimate of the expenditurerequired to settle the present obligation.

Profit and loss statementSales are the commission of 50.000,00.

Other operating income include the release of a provision. (Amount in Euro)

Legal and consulting cost 36.738,37Commission 20.000,00Other cost 5.856,52Other operating expenses 62.594,89

Due to the taxable loss carry forward no taxes on profit from ordinary operations are disclosed.

Cash-flow statement (Amount in Euro)

Net profit 2.405,67Increase receivables (55.433,01)Increase liabilities 21.453,14Operating cash-flow (31.574,20)Investing cash-flow(financial investments) (1.458.970,10)Financing cash-flow(increase in subscribed capital) 1.475.000,00Change in cash at banks (15.544,30)Cash at banks 01.04.2004 25.032,60Cash at banks 31.03.2005 9.488,30

PARTICULARS ACQUISITION COST DEPRECIATION BOOK VALUE

1st Addition Disposal 31st 1st Addition Disposal 31st 31st 31stApril, March, April, March, March, March,2004 2005 2004 2005 2005 2004

Financial investments

1, Subsidiaries 0,00 750.893,82 0,00 750.893,82 0,00 0,00 0,00 0,00 750.893,82 0,00

2. Associates 0,00 708.076,28 0,00 708.076,28 0,00 0,00 0,00 0,00 708.076,28 0,00

0,00 1.458.970,10 0,00 1.458.970,10 0,00 0,00 0,00 0,00 1.458.970,10 0,00

Statement of fixed assets (Amount in Euro)

ManagerDr. Stefan Kinnemann, BonnHemant Kanoria, Kolkata/Indian

Financial investmentsCompany Subscribed capital Quote-part

in local currency %Aermid Srei Health Care United Kingdom,Finance Ltd. London 480.000,00 GBP 15

Closed joint stock Company Russian Federation, 27.000.000,00 RUB 90ZAO SREI Leasing Moscow

211

SREI Infrastructure Finance Limited

Consolidated Financial Statements

Auditors Report

1. We have examined the attached Consolidated Balance

Sheet of SREI Infrastructure Finance Limited and its

subsidiaries as at March 31, 2005 and also the

Consolidated Profit and Loss Account and the Cash Flow

Statement for the year then ended. 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 generally

accepted auditing standards in India. These standards

require that we plan and perform the audit to obtain

reasonable assurance whether the financial statements are

prepared, in all material respect in accordance with an

identified financial reporting framework and are free of

material misstatements. An audit includes, examining on

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 the management, as well as

evaluating the overall financial statements. We believe that

our audit provides a reasonable basis for our opinion.

3. We did not audit the financial statements of certain

subsidiaries, whose financial statements reflects total

assets of Rs. 142,335 thousands as at March 31, 2005 and

total revenue of Rs. 590,236 thousands for the year then

ended. These financial statements have been audited by

other auditors whose reports have been furnished to us,

and our opinion in so far as it relates to the amounts

included in respect of the subsidiaries, is based solely on

the report of other auditors.

4. Attention is invited to note no. 3 of Schedule 15 to the

consolidated financial statements, where the accounts of

a foreign subsidiary have not been prepared in

accordance with the requirements of Indian Accounting

Standards. We reserve our opinion in respect of the total

assets of Rs. 86,444 thousands and total revenue of

Rs. 3,685 thousands of such subsidiary.

5. We report that the Consolidated financial statements have

been prepared by the Company in accordance with

requirements of Accounting Standard 21, Consolidated

Financial Statements, issued by the Institute of Chartered

Accountants of India and on the basis of the separate

audited financial statements of SREI Infrastructure Finance

Limited and its aforesaid subsidiaries included in the

consolidated financial statements.

6. On the basis of information and explanations given to us,

and on the consideration of the separate audit reports on

individual audited financial statements of SREI

Infrastructure Finance Limited and its aforesaid

subsidiaries, subject to our comments in paragraph 4

above, we are of the opinion:

a. The Consolidated Balance Sheet gives a true and fair

view of the consolidated state of affairs of SREI

Infrastructure Finance Limited and its aforesaid

subsidiaries as at March 31, 2005;

b. The Consolidated Profit and Loss Account gives a true

and fair view of the Consolidated results of operations

of SREI Infrastructure Finance Limited and its aforesaid

subsidiaries for the year then ended; and

c. The Consolidated Cash Flow Statement gives a true and

fair view of the Consolidated Cash Flows of SREI

Infrastructure Finance Limited and its aforesaid

subsidiaries for the year then ended.

For Deloitte Haskins & Sells

Chartered Accountants

A. Bhattacharya

Place : Kolkata Partner

Dated : 28th June, 2005 Membership No. 054110

To the Board of Directors,

SREI Infrastructure Finance Limited

(Formerly: SREI International Finance Limited)

212 10 lacs is equal to 1 Million

Consolidated Balance Sheet As at March 31

(Rupees in Lacs)

Schedule 2005 2004

SOURCES OF FUNDS

Shareholders’ Fund

Share Capital 1 5345 5345

Reserves and Surplus 2 11290 16635 9128 14473

Mezzanine Capital 8101 7970

Loan Funds

Secured 3 79918 60150

Unsecured 4 10534 12673

90452 72823

Deferred Tax 4752 3825

Minority Interest 269 –

Total 120209 99091

APPLICATION OF FUNDS

Fixed Assets 5

Gross Block 2644 2385

Less: Depreciation/Amortisation 727 592

Net Block 1917 1793

Capital Work in Progress – 43

1917 1836

Investments 6 4840 1765

Current Assets, Loans and Advances

Current Assets 7 126038 104155

Loans & Advances 8 7489 6774

133527 110929

Less: Current Liabilities and Provisions

Liabilities 9 15982 11940

Provisions 10 4237 3727

20219 15667

Net Current Assets 113308 95262

Miscellaneous Expenditure 144 228

(To the extent not written off or adjusted)

Total 120209 99091

Significant Accounting Policies and

Notes on Financial Statements 15

The Schedules referred to above form an integral part of the Consolidated Balance Sheet.

This is the Consolidated Balance Sheet referred to in our report of even date.

For Deloitte Haskins & Sells On behalf of the BoardChartered Accountants

A. Bhattacharya M. S. Verma Hemant Kanoria Sandeep LakhotiaPartner Chairman Vice Chairman & Company Secretary

Managing Director

Place : KolkataDated : 28th June, 2005

21310 lacs is equal to 1 Million

SREI Infrastructure Finance Limited

Consolidated Profit and Loss AccountFor the year ended March 31

The Schedules referred to above form an integral part of the Consolidated Profit & Loss Account.

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

For Deloitte Haskins & Sells On behalf of the BoardChartered Accountants

A. Bhattacharya M. S. Verma Hemant Kanoria Sandeep LakhotiaPartner Chairman Vice Chairman & Company Secretary

Managing Director

Place : KolkataDated : 28th June, 2005

(Rupees in Lacs)

Schedule 2005 2004

INCOME

Income from Operations 11 13240 11902

Others 12 135 77

Total 13375 11979

EXPENDITURE

Administrative & Other Expenses 13 3018 2146

Finance Charges 14 5583 6297

Depreciation/Amortisation 136 131

Miscellaneous Expenditure written off 59 59

Total 8796 8633

Profit Before Bad Debts and Provisions 4579 3346

Bad Debts written off 315 268

Provisions as per the norms of Reserve Bank 222 103

of India & Foreign Financial Institutions

Provision for Premium on Mezzanine Capital 88 88

625 459

Profit Before Tax 3954 2887

Provision for Current Tax 202 187

Profit After Current Tax 3752 2700

Deferred Tax 927 644

Profit After Deferred Tax 2825 2056

Share of Profit of Associates 57 32

Profit After Share of Profit of Associates 2882 2088

Minority Interest 0 * –

Surplus brought forward from previous year 681 178

Profit Available for Appropriation 3563 2266

APPROPRIATIONS

Dividend 800 800

Corporate Dividend Tax 105 103

Special Reserve (As per Reserve Bank of India guidelines) 570 452

Bond/Debenture Redemption Reserve 80 80

General Reserve 150 150

Surplus carried to Balance Sheet 1858 681

Total 3563 2266

Earnings Per Equity Share (Rs.) 5.41 3.92

(Face Value Rs. 10/- per Share)

Significant Accounting Policies and

Notes on Financial Statements 15

* denotes value less than 1 lac

214 10 lacs is equal to 1 Million

Schedules to the Consolidated Balance Sheet As at March 31

Authorised40,00,00,000 Equity Shares of Rs. 10/- each 40000 10000

(Previous year 10,00,00,000 shares)0 Preference Shares of Rs. 200/- each 0 30000

(Previous year 1,50,00,000 shares)3,00,00,000 Preference Shares of Rs. 100/- each 30000 20000

(Previous year 2,00,00,000 shares)0 Preference Shares of Rs. 50/- each 0 10000

(Previous year 2,00,00,000 shares)70000 70000

Issued and Subscribed53767733 (Previous year 53767733) Equity Shares of Rs.10/- each 5377 5377

Paid up53294906 (Previous year 53294906) Equity Shares

of Rs.10/- each fully paid up 5330 5330Add : Forfeited Shares 15 5345 15 5345

5345 5345

(Rupees in Lacs)

2005 2004

1 SHARE CAPITAL

A. Capital Reserves 165 3 168Total - A 165 3 168B. Revenue Reserves

I. General Reserve 2250 336 2586Securities Premium 5831 182* 6013Bond/NCD Redemption Reserve 506 (106) 400Special Reserve as per Reserve Bank of India Guidelines 2077 570 2647

10664 982 116462. Surplus

Profit & Loss Account 681 1177 185811345 2159 13504

Less: Adjustment for Deferred Tax (as on 1-4-2001) 2382 – 2382Total - B 8963 2159 11122Total : A + B 9128 2162 11290

* Represents share of Securities Premium of Associate Company.

Addition during2004 the year 2005

2 RESERVES AND SURPLUS

21510 lacs is equal to 1 Million

SREI Infrastructure Finance Limited

Schedules to the Consolidated Balance Sheet As at March 31

(Rupees in Lacs)

(Rupees in Lacs)

2005 2004

4 UNSECURED LOANS

Term LoansDomestic Financial Institutions/Banks 14048 14787Foreign Financial Institutions 11535 17732Working Capital Facilities 45370 20902Deferred Credits 340 376Floating Rate Short Term Debenture 6000 2800Multi Option Step Up Bond – 5314% Secured Non Convertible Debentures – 5009.95% Foreign Guaranteed Local Currency Bonds 2625 3000{Crisil Rated AAA (so)}

79918 60150

2005 2004

3 SECURED LOANS

Public Deposits 1447 1307Commercial Paper 4500 6500Term Loans from Foreign Financial Institution 3898 4866Short Term Loans 689 –

10534 12673

5 FIXED ASSETS

PARTICULARS GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCK

As at Addition Sales/Adj. As at Upto For Sales/Adj. Upto As at As atMarch 31, during during March 31, March 31, the year during March 31, March 31, March 31,

2004 the year the year 2005 2004 the year 2005 2005 2004

Freehold Land 403 – – 403 – – – – 403 403

Buildings 740 – – 740 98 12 – 110 630 642

Furniture & Fixtures 419 68 – 487 131 25 – 156 331 288

Motor Vehicles 209 40 8 241 107 18 1 124 117 102

Machinery 614 52 1 665 256 73 – 329 336 358

Total (A) 2385 160 9 2536 592 128 1 719 1817 1793

Intangible Assets

Software – 108 – 108 – 8 – 8 100 –

Total (B) – 108 – 108 – 8 – 8 100 –

Total (A+B) 2385 268 9 2644 592 136 1 727 1917 1793

Previous year 2120 265 – 2385 461 131 – 592 1793

216 10 lacs is equal to 1 Million

2005 2004

7 CURRENT ASSETS

Project Finance 12789 12371Assets for Hire 140784 114312Assets for Lease 49827 39197Housing Finance 26 22

203426 165902Less: Securitised 84475 69083

118951 96819Stock for Trade 890 906Debtors - Considered good

Exceeding six months 253 146Other Debts 315 331

Other Receivables 876 808Interest accrued but not due 230 92Cash & Bank Balances

Cash in hand 59 88With Scheduled Banks- In Unclaimed Dividend Account 24 26- In Current Account 564 2890- In Fixed Deposit Account 3876 2049

126038 104155

2005 2004

6 INVESTMENTS, FULLY PAID UP

In Associates 1458 1212 (After Adjustment for Share of Profits and Securities Premium) In Government, Government Guaranteed Securities, Bonds & Units 320 342 In Other Securities 3062 211

4840 1765

Schedules to the Consolidated Balance Sheet As at March 31

(Rupees in Lacs)

21710 lacs is equal to 1 Million

SREI Infrastructure Finance Limited

Schedules to the Consolidated Balance Sheet As at March 31

(Unsecured, considered good)

Advances recoverable in cash or in kindor for value to be received or pending adjustmentsAdvance Tax 1075 808Others 6414 5966

7489 6774

(Rupees in Lacs)

2005 2004

8 LOANS AND ADVANCES

Sundry Creditors 9690 4935 Security Deposits 5048 4715 Advances from Customers 259 1416 Interest accrued but not due 495 452 Amounts to be credited to Investor’s Education and Protection Fund*

Unpaid dividend 24 26 Unpaid matured deposits 98 124 Unpaid matured debentures 25 28 Interest accrued 70 50

Others 273 194 15982 11940

* There is no amount due and outstanding as at Balance Sheet date to be credited to Investors’ Education and Protection Fund.

2005 2004

9 LIABILITIES

Proposed Dividend 800 800 Provision for Dividend Tax 105 103 Provision as per the norms of Reserve Bank of India & Foreign Financial Institution 1969 1747 Provision for diminution in the value of long term investments 5 7 Provision for Premium on Mezzanine Capital 440 352 Provision for Current Taxation 918 718

4237 3727

2005 2004

10 PROVISIONS

218 10 lacs is equal to 1 Million

Schedules to the Consolidated Profit and Loss AccountFor the year ended March 31

Finance charges including Lease Income etc 11450 9976 Interest received on Project Finance 1119 1066 Sale of Currencies & Travellers’ Cheques 5716 6605 Less: Purchase of Currencies and Travellers’ Cheques 5630 6505 Add: Increase/(Decrease) in value of Stock 1 87 (50) 50 Interest received from Govt. Securities/Banks 236 232 Consultancy Service 66 25 Arranger Fees 89 514 Income from Treasury/Investment Operations 159 17 Others 34 22

13240 11902

2005 2004

11 INCOME FROM OPERATIONS

Provision for diminution in value of Long Term Investmentsno longer required written back 2 8 Dividend 2 1 Profit /(Loss) on Sale of Securities – 17 Commission and Incentive 62 4 Others 69 47

135 77

2005 2004

12 OTHER INCOME

On Term Loans / Working Capital Facilities 3703 4892 On Deferred Credits 51 56 On Fixed Deposits 127 113 On Bonds/Non-Convertible Debentures 1609 1021 Lease Rental 65 39 Others 28 176

5583 6297

2005 2004

14 FINANCE CHARGES

Salaries & Allowances 1076 750 Employer’s Contribution to Provident Fund 64 41 Postage, Telegram and Telephone 155 111 Legal & Professional Fees 346 246 Electricity Charges 70 60 Rent, Rates and Taxes 122 57 Brokerage and Service Charges 210 100 Auditors’ Remuneration 10 10 Repairs and Maintenance 107 89 Travelling and Conveyance 490 407 Directors’ Fees 8 4 Insurance Premium 6 21 Printing and Stationary 74 51 Advertisement and Subscription 97 64 Other Miscellaneous Expenses 183 135

3018 2146

2005 2004

13 ADMINISTRATIVE & OTHER EXPENSES

(Rupees in Lacs)

219

SREI Infrastructure Finance Limited

Schedules to the Consolidated Balance Sheet and Profit & Loss Account

I. SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Accounting

The financial statements are prepared in accordance with Generally Accepted Accounting Principles in India and the provisions

of the Companies Act, 1956 and the guidelines issued by the Reserve Bank of India, wherever applicable.

2. Principles of Consolidation

For preparation of these Consolidated Financial Statements in keeping with the Accounting Standard 21 (AS 21) - Consolidated

Financial Statements issued by The Institute of Chartered Accountants of India -

(a) the financial statements of the Parent Company and its subsidiaries have been combined on a line by line basis by adding

together like items of assets, liabilities, income and expenses excluding intra-group balances and transactions resulting in

unrealized profits or losses, which have been eliminated in full,

(b) in the case of investment in a subsidiary where the holding is less than 100%, minority interest in the net assets of

consolidated subsidiary consists of:

(i) The amount of equity attributable to minorities at the date on which investment in the subsidiary is made.

(ii) The minorities share of movements in equity since the date of the parent subsidiary relationship came into existence.

Minority interest s share of net profit for the year of consolidated subsidiary is identified and adjusted against profit after

tax of the group.

(c) Uniform accounting policies for like transactions and other events in similar circumstances have been adopted and

presented to the extent possible, in the same manner as the parent Company s separate financial statements.

3. Revenue Recognition

3.1 Lease / Hire Income

3.1.1 Lease income is recognised based on the Internal Rate of Return method over the period of the lease. Hire charges

in respect of hire purchase transactions are accounted under Capital Recovery Method based on internal rate of

return on an accrual basis except income relating to Non Performing Assets (NPA), which is recognised in accordance

with guidelines issued by the Reserve Bank of India.

3.1.2 Delayed payment charges and rebate allowed on timely payments are recognised as and when received/paid.

3.1.3 Sale and purchase of foreign currencies, traveller s cheques & commission thereon are accounted on accrual basis.

3.1.4 All other income are accounted for on accrual basis except for dividend and interest on debentures which are

accounted for as and when received.

3.2 Others

All other income is accounted for on accrual basis except dividend and interest on debentures, which are accounted for as

and when received.

4. Provisions

Provisions are considered in the financial statements in compliance with the prudential norms prescribed by the Reserve Bank

of India for income recognition, asset classification, bad and doubtful debts, capital adequacy and concentration of

credit/investments. Additional provision as per the requirement of Foreign Financial Institution has also been made as follows:

Asset Classification Arrear Period Provision as per Provision as per Foreign Provision adopted

Reserve Bank of India Financial Institution by the Company

% of Portfolio % of Portfolio % of Portfolio

Standard Less than 90 days Nil Nil Nil

91 to 180 days Nil 20 20

181 to 360 days Nil 50 50

361 to 365 days Nil 100 100

Sub-Standard 12 months to 18 months 10 100 100

Doubtful 18 months to 36 months 40 100 100

36 months to 48 months 70 100 100

Loss Above 48 months 100 100 100

15 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON CONSOLIDATED FINANCIAL STATEMENTS

220

Schedules to the Consolidated Balance Sheet and Profit & Loss Account

5. Foreign Currency Transactions

5.1 Foreign exchange transactions are recorded at the exchange rates prevailing at the time of transaction.

5.2 Assets and liabilities expressed in foreign currencies (to the extent not covered against exchange fluctuations) are

translated into Indian Rupees at the exchange rate ruling at the Balance Sheet date and any loss or gain arising therefrom

has been considered in the Profit & Loss account.

5.3 In respect of forward exchange contracts entered into by the Company, the difference between the forward rate and the

exchange rate on the date of the transaction are recognised as income or expense over the life of the contract.

6. Prior Period and Extra Ordinary Items

6.1 Prior Period and Extra Ordinary items having material impact on the financial affairs of the Company are disclosed.

6.2 Contingencies, which can reasonably be ascertained, are provided for if, in the opinion of the Company there is a

probability that the future outcome may have material impact on its affairs.

7. Fixed Assets and Depreciation/Amortisation

7.1 Fixed assets are stated at their original cost of acquisition (including expenditure and interest incurred for the acquisition

and/or installation) less accumulated depreciation.

7.2 Intangible Assets expected to provide future enduring economic benefits are stated at cost less amortisation. Cost

comprises purchase price and directly attributable expenditure on making the asset ready for its intended use.

7.3 Depreciation on fixed assets has been provided on straight-line method at rates as prescribed under Schedule XIV to the

Companies Act, 1956 at the following rates:

Building 1.63%

Furniture & Fixtures 6.33%

Vehicles 9.50%

Computers 16.21%

General Plant & Machinery 4.75%

7.4 Leasehold assets are amortised over the period of lease.

7.5 Intangible assets are amortised over the best estimate of its useful life ranging upto 6 years.

8. Impairment of Fixed Assets

Wherever events or changes in circumstances indicate that the carrying value of Fixed Assets may be impaired, the Company

subjects such assets to a test of recoverability, based on discounted cash flows expected from use or disposal of such assets.

If the assets are impaired, the Company recognises an impairment loss as the difference between the carrying value and fair

value less costs to sell. None of the Company s Fixed assets are considered impaired as on the Balance Sheet date.

9. Capital Work in Progress

Capital work in progress is stated at cost and includes development and other expenses including interest during construction

period.

10. Investments

10.1 Investments are classified into "Long Term" and "Current" Investments.

10.2 All long-term investments including investments in subsidiary companies are valued at cost. However, provision for

diminution in the value of long term investments is made by the Company to recognise permanent decline, if any, in value

of investments individually.

10.3 Cost is arrived at on weighted average method for the purpose of valuation of investment.

11. Current Assets

11.1 Assets for hire include Hypothecation and are valued at agreement value less unmatured finance charges etc. and amount

received.

15 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

221

SREI Infrastructure Finance Limited

Schedules to the Consolidated Balance Sheet and Profit & Loss Account

11.2 Assets for Lease are stated at Net investment amount.

11.3 Securities held as stock for trade are valued at lower of cost or market price determined category-wise.

12. Government / Semi-Government Grants

Grants in the nature of Capital Investment are treated as Capital Reserve.

13. Miscellaneous Expenditure

Miscellaneous expenditure including share issue expenditure are amortised over a period of ten years. Expenditure on issue of

bonds and debentures are amortised over their tenure.

14. Retirement and Other Benefits

14.1 The Company has gratuity fund covered by a scheme with Life Insurance Corporation of India and contributions to this

fund are charged to revenue.

14.2 Contribution to Provident Fund is made as per provisions of Employees Provident Fund and Miscellaneous Provisions Act,

1952 and charged to Profit and Loss Account and disclosed separately.

14.3 Liability for leave encashment is provided on the basis of the actual encashable leave outstanding at the year-end.

15. Taxes on Income

15.1 Current tax is the amount of tax payable on the taxable income for the year determined in accordance with the provisions

of the Income Tax Act, 1961.

15.2 Deferred tax is recognised on timing differences, being the differences between the taxable income and accounting

income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax assets

subject to the consideration of prudence are recognised and carried forward only to the extent that there is a reasonable

certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.

16. Earnings per Share

The Company reports basic and diluted earnings per equity share in accordance with Accounting Standard-20, Earnings Per

Share issued by The Institute of Chartered Accountants of India. Basic earnings per equity share have been computed by

dividing net profit after tax by the weighted average number of equity shares outstanding for the year. Diluted earning per

equity share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding

during the year.

17. Securitised Assets

All the assets securitised by the Company are derecognised from the books of accounts as per the guidance note issued by

The Institute of Chartered Accountants of India.

Income on securitised assets is spread over the tenure of servicing of securitised assets and included in finance income under

Income from Operations.

Contingent liabilities, if any, for securitised assets are disclosed separately.

15 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

222

(Rs. In Lacs)

Name of the subsidiary / associate Status Country of incorporation % Holding

SREI Capital Markets Ltd. Subsidiary India 100%

SREI Forex Ltd. do India 100%

SREI Money Mall Ltd. do India 100%

SREI Insurance Agency & Broking Ltd. do India 100%

SREI Venture Capital Ltd. do India 100%

SREI Insurance Services Ltd. do India 100%

Global Investment Trust Ltd. do India 100%

Bengal SREI Infrastructure Development Ltd. do India 100%

IIS International Infrastructure Services Gmbh do Germany 68.33%

Indian Infrastructure Equipment Ltd. Associate India 21.55%

Schedules to the Consolidated Balance Sheet and Profit & Loss Account

15 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

2. The details of subsidiary /associate are as follows –

II. NOTES ON CONSOLIDATED FINANCIAL STATEMENTS

1. In accordance with Accounting Standard 21 "Consolidated Financial Statements" issued by the Institute of Chartered

Accountants of India, the Consolidated Financial Statements of SREI Infrastructure Finance Ltd. include the financial

statements of all its subsidiaries which are more than 50% owned and controlled.

3. In respect of IIS International Infrastructure Services Gmbh, the accounts have been drawn up using Accounting Standards

other than those followed in India. Total Assets of such subsidiary amount to Rs. 864 lacs as at 31 March, 2005 and Total

revenue for the year ended 31 March, 2005 amounts to Rs. 37 lacs.

4. Contingent Liabilities (Rs. in Lacs)

2005 2004

4.1 Estimated Amount of Capital Contracts – 9Remaining to be executed (Net of Advances)

4.2 Foreign Letter of Credit Issued by banks for acquiring 3261 3657

assets for Lease / Hire-Purchase

4.3 Disputed Sales Tax Demand 29 30

4.4 Disputed Income Tax Demand 98 254

4.5 Bank Guarantee 101 16

4.6 Guarantee against securitised assets 4423 3735

5. Earnings Per Share

Particulars Equivalent No. of Shares

Year ended March 31

2005 2004

1 Opening No. of Shares 53294906 53294906

2 Total Shares outstanding 53294906 53294906

3 Profit after Taxes (Rs. in lacs) 2882 2088

4 Earnings per share (Rs.) 5.41 3.92

223

SREI Infrastructure Finance Limited

(Rupees in Lacs)

6. Segment wise details as required by AS-17 issued by Institute of Chartered Accounts of India is as under.

Lending, Leasing, Money Investment Others Total

Hire Purchase Changing Banking

Segment Revenue 12956 87 108 224 13375

(11338) (50) (514) (77) (11979)

Segment Result 3980 2 16 -44 3954

(2870) (7) (27) (-17) (2887)

Tax Expenses 1150 – 5 -26 1129

(826) (2) (10) (-7) (831)

Net Profit After Deferred Tax – – – – 2825

(2056)

Segment Assets 138153 107 689 1335 140284

(113535) (142) (705) (148) (114530)

Segment Liabilities 118536 47 47 142 118772

(95409) (84) (47) (17) (95557)

Capital Expenditure 267 1 – – 268

(300) (3) – (5) (308)

Depreciation 118 1 10 7 136

(112) (1) (10) (8) (131)

Other non-cash expenditure 55 – – 4 59

(56) (–) (–) (3) (59)

Amount in brackets represent previous year figures.

7. The previous year s figures have been regrouped /rearranged, wherever considered necessary.

Schedules to the Consolidated Balance Sheet and Profit & Loss Account

15 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON CONSOLIDATED FINANCIAL STATEMENTS (Contd.)

Signatories to Schedule 1 to 15.

For Deloitte Haskins & Sells On behalf of the BoardChartered Accountants

A. Bhattacharya M. S. Verma Hemant Kanoria Sandeep LakhotiaPartner Chairman Vice Chairman & Company Secretary

Managing Director

Place : KolkataDated : 28th June, 2005

224

Consolidated Cash Flow StatementFor the year ended March 31

A. Cash Flow From Operating Activities

Net Profit Before Tax 3954 2887

Adjustment for :

Depreciation 136 131

Interest Expenses 5583 6297

Miscellaneous Expenditure written off 59 59

Dividend Income (2) (1)

Operating Profit before Working Capital changes 9730 9373

Adjustments for:

(Increase) / Decrease in Receivables/Others (704) (27)

(Increase) / Decrease in Lease & Hire Assets & Infrastructure Loans (22132) (5259)

(Decrease) / Increase in Trade Payables 4307 (3211)

Cash Generated From Operations (8799) 876

Interest Paid (5409) (6103)

Advance Tax (267) (242)

Net Cash (Used in) / Generated from Operating Activities (14475) (5469)

B. Cash Flow from Investing Activities

Purchase of Fixed Assets (225) (308)

Proceeds from Sale of Fixed Assets 8 –

(Increase) / Decrease in Investments (2566) (40)

Dividend Received 2 1

Net Cash (Used) / Generated in Investing Activities (2781) (347)

C. Cash Flow From Financing Activities

Net Increase in Borrowings 17629 8,982

Dividend Paid (800) (533)

Dividend Tax (103) (68)

Net Cash (Used) / Generated in Financing Activities 16726 8381

Net Increase / (Decrease) in Cash & Cash Equivalents (530) 2565

Cash & Cash Equivalents as on 01.04.2004 5053 2488

Cash & Cash Equivalents as on 31.03.2005 4523 5053

Notes:1. The above Cash Flow Satement has been prepared under the Indirect Method as set out in the Accounting Standard 3 (AS 3)

’Cash Flow Statements’ issued by the Institute of Chartered Accountants of India.

2. Previous year’s figures have been regrouped, wherever necessary to conform to the current year’s classification.

This is the Cash Flow Statement referred to in our report of even date.

(Rupees in Lacs)

2005 2004

For Deloitte Haskins & Sells On behalf of the BoardChartered Accountants

A. Bhattacharya M. S. Verma Hemant Kanoria Sandeep LakhotiaPartner Chairman Vice Chairman & Company Secretary

Managing Director

Place : KolkataDated : 28th June, 2005

225

SREI Infrastructure Finance Limited

Consolidated Statements of Financial Position

US GAAP Accounts

March 31, 2004 March 31, 2005 March 31, 2005

Indian Rupees US Dollars

(In Thousands)

ASSETS

Cash and cash equivalents 301,254 65,671 1,501

Short term deposits with banks 204,899 387,605 8,862

Receivables 128,472 144,409 3,302

Investments in available for sale securities 145,089 427,275 9,769

Investment in finance type leases 8,220,146 10,254,668 234,446

Less: Allowance for Credit Losses (173,226) (195,082) (4,460)

Net Investment in finance type leases 8,046,920 10,059,586 229,986

Assets subject to operating leases 208,538 345,088 7,890

Investment in affiliates 122,493 145,060 3,316

Loans 1,237,895 1,279,703 29,257

Net property, plant and equipment 216,170 221,815 5,071

Other assets 699,502 782,756 17,896

TOTAL ASSETS 11,311,232 13,858,968 316,850

LIABILITIES AND SHAREHOLDERS EQUITY

Liabilities

Senior debt 6,015,042 7,991,864 182,713

Senior subordinated debt 1,267,339 1,053,356 24,082

Junior subordinated debt 780,373 810,087 18,521

Capital lease obligations 30,947 31,045 710

Accounts payable and customer advances 635,119 996,737 22,788

Other accrued liabilities 612,652 655,020 14,975

Income tax payable 71,796 91,757 2,098

Deferred tax liabilities 380,628 479,200 10,956

Total liabilities 9,793,896 12,109,066 276,843

Commitments and contingencies (see Note 16)

Minority Share 27,640 632

Shareholders equity

Equity shares; Par value Rs. 10; authorized 100,000,000

shares; issued and fully paid 53,294,906 shares 534,463 534,463 12,219

Additional paid in capital 654,437 666,129 15,229

Accumulated other comprehensive losses (5,422) (4,635) (106)

Retained earnings 333,858 526,305 12,033

Total shareholders equity 1,517,336 1,722,262 39,375

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 11,311,232 13,858,968 316,850

The following statements of financial position, statements of income, statements of cash flows, statements of shareholders equity

have been extracted from financial statements, which have been prepared in accordance with accounting principles generally

accepted in United States of America ( US GAAP ), on which our independent auditors, Deloitte Haskins & Sells, chartered

accountants, have issued an unqualified report dated 28th June, 2005.

By order of the Board

Hemant Kanoria

Vice Chairman & Managing Director

(1US $ = Rs. 43.74)

226

Consolidated Statements of IncomeYear ended Year ended Year ended

March 31, 2004 March 31, 2005 March 31, 2005

Indian Rupees US Dollars

(In Thousands, except per share amounts)

Revenues

Interest income, including dividend 1,130,620 1,283,303 29,339

Interest expense (654,778) (583,883) (13,349)

Net interest income 475,842 699,420 15,990

Provision for credit losses (10,326) (22,185) (507)

Net interest income after provision for credit losses 465,516 677,235 15,483

Net margin on sale of currencies and travellers cheques 9,995 8,778 201

Realised gain / (loss) on available for sale securities (3,247) 2,058 47

Other revenues 59,910 42,988 983

Total Revenues 532,174 731,059 16,714

Operating Expenses

Salaries and fringe benefits 79,183 113,974 2,606

Selling, general and other administrative 164,952 222,058 5,077

Depreciation 15,586 16,068 367

Total Operating expenses 259,721 352,100 8,050

Operating Income 272,453 378,959 8,664

Other income (expense)

Share of gain (loss) of affiliates 4,538 22,567 516

Income before income taxes 276,991 401,526 9,180

Income tax expense 84,797 118,894 2,718

Net Income 192,194 282,632 6,462

EARNINGS PER EQUITY SHARE

Basic and diluted 3.61 5.30 0.12

DIVIDEND PER EQUITY SHARE 1.00 1.50 0.03

Weighted average equity shares used in computing

earnings per equity share:

Basic and diluted 53,295 53,295 53,295

(1US $ = Rs. 43.74)

227

SREI Infrastructure Finance Limited

Consolidated Statements of Cash FlowYear ended Year ended Year ended

March 31, 2004 March 31, 2005 March 31, 2005Indian Rupees US Dollars

(In Thousands)

Cash Flows From OperationsNet Income 192,194 282,632 6,462 Adjustments to reconcile net income to cash flows from operations: – – –

Provision for credit losses 10,326 22,185 507 Depreciation 15,586 16,068 367 Amortisation of interest expense 16,599 16,597 379 Deferred tax expense 66,072 98,715 2,257 Profit / (loss) on sale of investments available for sale (1,753) (2,054) (47)Share of Loss / (gain) of affiliates (4,538) (22,567) (516)Changes in assets and liabilities:Receivables 8,951 6,248 143 Other assets 9,179 (97,285) (2,224)Accounts payable and customer advances 454,919 361,716 8,270 Other accrued liabilities (1,096,483) 42,368 969Income taxes payable (12,086) 19,961 456 Net Cash Provided / (Used) by Operations (341,034) 744,584 17,023

Cash Flows From Investing ActivitiesNet investments in finance leases, net of repayments 330,316 (2,012,667) (46,014)Investments in operating leases (92,820) (136,550) (3,122)Loans advanced, net of repayments (478,134) (41,808) (956)Purchases of property, plant and equipment (30,755) (21,712) (496)Proceeds from sales of property, plant and equipment – – –

Short term deposit with banks (4,697) (182,706) (4,177)Purchase of available for sale investments (476,794) (522,715) (11,951)Proceeds from sale of available for sale investments 475,217 240,529 5,499 Net Cash Provided / (Used) in Investing Activities (277,667) (2,677,629) (61,217)

Cash Flows From Financing ActivitiesProceeds / (Repayment) of senior debt, net 309,984 1,976,822 45,195 Proceeds / ( Repayment ) of senior subordinated debt, net 604,492 (213,983) (4,892)Proceeds from issue of junior debt 18,163 13,117 300 Proceeds from issuance of equity shares – – –

Loan given to ESOP trust (3,155) 11,692 267 Dividends paid (60,128) (90,185) (2,062)Net Cash Provided / (Used) by Financing Activities 869,356 1,697,463 38,808 Net increase / (decrease) in cash and cash equivalents 250,655 (235,583) (5,386)Cash and cash equivalents, beginning of Period 50,599 301,254 6,887

Cash and Cash Equivalents, End of Period 301,254 65,671 1,501

Supplementary cash flow information:Interest paid 628,489 579,523 13,249 Income taxes paid 26,121 26,743 611

Supplementary information on non cash transactions:Capital lease obligations 295 (98) (2)

(1US $ = Rs. 43.74)

228

Statements of Shareholders EquityNumber of Share Capital Additional paid Comprehensive Accumulated Retained Total

Shares in capital income other compre- Earnings

hensive loss

At March 31, 2003 53,294,906 534,463 657,592 (11,220) 201,792 1,382,627

Unearned ESOP (3,155) (3,155)

Dividends (60,128) (60,128)

Net Income 192,194 192,194 192,194

Translation Adjustment (65) (65) (65)

Unrealised gain on

investments available-for-sale 5,863 5,863 5,863

Comprehensive income 197,992

At March 31, 2004 53,294,906 534,463 654,437 (5,422) 333,858 1,517,336

Unearned ESOP 11,692 11,692

Dividends (90,185) (90,185)

Net Income 282,632 282,632 282,632

Translation Adjustment 272 272 272

Unrealised gain on investments

available-for-sale 515 515 515

Comprehensive income 283,419

At March 31, 2005 53,294,906 534,463 666,129 (4,635) 526,305 1,722,262

At March 31, 2005

(In US Dollars) 53,294,906 $ 12,219 $ 15,229 $ (106) $ 12,033 $ 39,375

Reconciliation of Net Profit/Income as per Indian GAAP and US GAAP

Results for the Results for the

year ended year ended

March 31, 2005 March 31, 2004

Profit as per Indian GAAP 288,222 208,807

Adjustmens to:

Investments 229 785

Affiliates 22,567 1,338

Taxes (6,047) (1,641)

Option Costs (16,597) (16,599)

Others (5,742) (496)

Net Income as per US GAAP 282,632 192,194

(Indian Rupees In Thousands)

(1US $ = Rs. 43.74)

(Indian Rupees In Thousands, except for equity shares)

For the readers convenience, a reconciliation of net profit as reported in statutory financial statements prepared in accordance

with Indian GAAP to the net income as determined in accordance with US GAAP as computed by management is provided

herewith. Those interested in obtaining a copy of the US GAAP financial statements may please write to the Company.

Registered office‘Vishwakarma’, 86C, Topsia Road (South), Kolkata - 700 046

Tel: +91 33 2285 0112-15, 2285 0124-27; Fax: +91 33 2285 7542/8501

Email: corporate@srei.com

Website: www.srei.com

Regional officesBangalore

52 Vittal Mallya Road, Bangalore – 560 001

Tel: +91 80 2224 1265; Fax: +91 80 2227 6727

Email: sreiblr@srei.com

Bhubaneswar A-162 Sahid Nagar, Bhubaneswar – 751 007

Tel: +91 674 254 5177/5290, 252 2560; Fax: +91 674 254 6338

Email: srei_bb@srei.com

Chennai Mahalaxmi, 1st Floor, 151 Peters Road, Gopalapuram, Chennai – 600 086

Tel: +91 44 2855 5470-71; Fax: +91 44 2855 5584

Email: sreichennai@srei.com

Hyderabad 202 & 203 Saptagiri Towers, 2nd Floor, Begumpet, S. P. Road, Hyderabad – 500 016

Tel: +91 40 5549 6600/8919, 5531 7320; Fax: +91 40 5549 4400

Email: sreihyd@srei.com

Mumbai Nishuvi, 3rd Floor

75 Dr. Annie Besant Road, Worli, Mumbai – 400 018

Tel: +91 22 2492 3904-05, 2496 8636-39; Fax: +91 22 2497 3709

Email: wro@srei.com

Nagpur Shradha Complex, F-3, 1st Floor, Kings Way, Nagpur – 440 001

Tel: +91 712 561 5645-46; Fax: +91 712 561 5168/1546

Email: sreinagpur@srei.com

New DelhiLakshmi Kunj, 8 Central Lane, Bengali Market, New Delhi - 110 001

Tel: +91 11 2332 2274/90; Fax: +91 11 2373 1542

Email: nro@srei.com

Overseas establishmentsGERMANY

IIS International Infrastructure Services GmbH

Lessingstrasse 40, 53113 Bonn, Germany

Tel: +49 228 242 1070; Fax: +49 228 242 1810

Email: kinnemann@t-online.de

RUSSIA

ZAO SREI Leasing

Moscow 117420, Russia

Namyotkina Street 10B, Building 1

Tel: +7 095 221 0124; Fax: +7 095 331 3688

Email: info@srei.ru

UNITED KINGDOM

Aermid SREI Healthcare Finance Ltd.

107 Warnford Court, Room No. 107

2nd Floor, 29 Throgmorton Street, London, EC2N 2AT

Tel: +44 207 374 8360; Fax: +44 207 374 8361

Email: stuart@srei.com

A PRODUCTinfo@trisyscom.com

Processed & Printed at Anderson Printing (anderson1@vsnl.net)

www.srei.com