Bigger. Bolder. Better. - Kotak Mahindra Bank Mahindra...continued to witness outflows reflecting ... to market AIFs in countries in the European Economic ... and the Statement of

Bigger. Bolder. Better.

Kotak Mahindra (UK) Limited

Annual Report 2013-14 1

Directors’ Report

KOTAK MAHINDRA (UK) LIMITED

The directors present their Directors’ Report and the audited financial statements of Kotak Mahindra (UK) Limited “the Company” for the year ended 31 March 2014.

PRINCIPAL ACTIVITY AND BUSINESS REVIEW

The Company’s primary focus is investment management, broker dealing and corporate finance. As a broker dealer the Company arranges deals in bonds as well as in depository receipts. The Company is authorised and regulated by the Financial Services Authority (“FSA”). The Company has two branches – Dubai (regulated by the Dubai Financial Services Authority) and Singapore (regulated by the Monetary Authority of Singapore).

The financial year 2013-14 was a challenging year for the Indian economy as a whole. GDP growth lesser than 5%, hardening of yields and depreciation in the Indian Rupee (“INR”) versus the US Dollar (“USD”) impacted returns of clients invested into India. Vulnerability of India’s Balance of Payment situation to the tapering of Quantitative Easing (QE) announced by the US Federal Reserve reduced significantly with timely support from the Government’s policy to restrict gold imports, and, the Central Bank’s (“Reserve Bank of India, RBI”) concessional swap facility that helped garner INR 2,037 billion through fresh FCNR(B) deposits and overseas bank borrowings. Politics began taking centre stage towards the latter half of the year due to the forthcoming elections to the Lower House of Parliament in India, results of which are expected by mid-May 2014. Most of the opinion polls indicate the possibility of a strong government emerging post-elections. An improved current account deficit coupled with expectations of a favourable election outcome helped the INR to stage a remarkable recovery against the USD. The benchmark index tracking the large cap companies, the broader stock exchange index in India (NIFTY) reported gains of 7.3% each and the index tracking midcap companies gained 5.9% in US Dollar terms for the financial year.

While Foreign Institutional Investors (“FIIs”) brought in INR 803 billion into Indian capital market during the current year, India dedicated equity funds continued to witness outflows reflecting investor’s continued preference for developed markets, and diversified country exposure within emerging markets. The fixed income market witnessed massive inflows from FIIs during the last quarter of current financial year, ending the year with approximate flows of INR 539 billion of net inflows, despite of net redemptions by the FII in the first nine months of the year.

During the year, the Company continued its focus on consistent fund performance. One of the equity funds classified as UCITS compliant, have generated consistent returns in excess of its respective benchmarks in the 1-year and 3-year investment horizon. The Company consolidated its relationships with institutional investors, expanded distribution, intensified efforts on discretionary debt and fixed income trading opportunities, and continued to provide access solutions to investors seeking to invest in India. The Company also extended its India debt offering with the launch of a new debt fund which is classified as UCITS compliant during the current year. A few of the Kotak group’s mutual fund equity and debt products can also be accessed by foreign institutional investors through our feeder structures.

The assets managed/ advised by the Company closed the year at INR 97,746 million (2013: INR 98,147 million).

POLITICAL AND CHARITABLE DONATIONS

The Company has made no political or charitable donations during the year (2013: NIL).

FUTURE OUTLOOK

The Company expects the monetary policy of the RBI to be contingent on fiscal policy direction, stability of emerging markets and the trajectory of consumer price inflation which would in turn determine the performance of the capital markets.

The situation is expected to positively change with India’s macro situation gradually improving and the INR stabilizing against the USD. The outcome of India’s general elections is being closely watched by foreign and local investors as it could prove to be a positive turning point for India and the Company is reasonably positioned to meet the challenges ahead and capitalize on a market upturn should the results match the expectation of the investors at large.

REGULATORY CHANGES AND ITS IMPACTS

THE ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE:

The Alternative Investment Fund Managers Directive (AIFMD) was published in the Official Journal of the European Union on 1 July 2011 and has been transposed into national law in the United Kingdom. AIFMD is effective from 22 July 2013 with a transitional period of one year. The scope of the AIFMD is broad and covers the management, administration and marketing of alternative investment funds (AIFs). Its focus is on regulating the Alternative Investment Fund Manager (AIFM) rather than the AIF. An AIF is a collective investment undertaking that is not subject to the UCITS regime. The transitional period allows UK AIFMs up to a year to seek the necessary variation of permission, authorisation or registration. It also allows certain AIFMs to market AIFs in countries in the European Economic Area that have adopted similar transitional provisions, without being subject to the requirements of AIFMD. The Company is the investment manager of several collective investment schemes which are not subject to UCITS regime. Therefore, the Company would meet the definition of an AIFM.

Kotak Mahindra (UK) Limited2

IMPACT OF AIFMD ON KOTAK MAHINDRA (UK) LIMITED (KMUK):

AIFMD restricts the regulated activities that can be undertaken by AIFMs. Therefore, if the Company were to continue as an AIFM, it will be able to engage only in the following activities:

• InvestmentmanagementservicestoAIFs;

• Managementofportfoliosofinvestmentsinaccordancewithmandatesgivenbyinvestorsonadiscretionaryclient-by-clientbasis;

• Providinginvestmentadvice;

• Safe-keepingandadministrationinrelationtosharesorunitsofcollectiveinvestmentschemes;and

• Receptionandtransmissionofordersinrelationtofinancialinstruments.

Importantly, the Company will not be able to engage in some of the significant activities it currently undertakes. These include:

• Dealingininvestmentsasmatchedprincipal;

• Dealingininvestmentsasagentinrelationtobonds;

• Safeguardingandadministrationofassetsotherthansharesorunitsofcollectiveinvestmentschemes;and

• Preparationand/ordisseminationofinvestmentresearch.

REORGANISATION

Owing to the restrictions on the activities that the Company can undertake under AIFMD, it has decided not to engage in the management of AIFs beyond the end of the transitional period on 22 July 2014. Therefore, the Company proposes to reorganize its business to enable it to continue to engage in other significant activities that it currently undertakes. The Company is currently examining various options in this regard.

FINANCIAL RESULTS

The loss on ordinary activities after taxation for the year ended 31 March 2014 was INR 230,417,415 (2013: INR 135,446,646).

DIVIDEND

The directors do not recommend payment of any dividend (2013: NIL).

KEY RISKS

The activity profile of the Company is focused on India and hence the Company is significantly exposed to an emerging market economy risk. The services rendered as a Foreign Institutional Investor are dependent on continued registration with the Indian Securities Regulator.

The reporting currency of the Company is the US Dollar and the Company is consequently exposed to the currency risk posed by adverse movements in US Dollar vis-à-vis Pound Sterling and the Singapore Dollar. The Company’s nature of business does not directly expose it to either the governments of, or the institutions or corporates in Greece, Portugal or any other country which would fall to be included in any credit rating lower than the investment grade.

DIRECTORS

The directors as at the date of this Report and who served during the period are:

Mr. Varadarajan Viswanathan

Mr. Gaurang Shah

Mr. Abhishek Bhalotia

Mr. C. Jayaram

Mr. Hasan Askari

Mr. Ruchit Puri

Mr. Gijo Joseph

QUALIFYING THIRD PARTY INDEMNITIES

There are no qualifying third party indemnities in force for the benefit of one or more of the directors and officers at the time of this report.


GOING CONCERN

The directors have considered the Company’s ability to continue as a going concern and after due inquiry to the management, believe that the Company has sufficient resources to continue operating for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.

FIXED ASSETS

Information on the tangible fixed assets of the Company is given in the financial statements.

DIRECTORS DECLARATION

The directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no relevant audit informationofwhichtheCompany’sauditorareunaware;andeachdirectorhastakenallthestepsthatheoughttohavetakenasadirectortomakehimself aware of any relevant audit information and to establish that the Company’s auditor are aware of that information.

AUDITORS

In accordance with Section 485 of the Companies Act 2006, a resolution to reappoint KPMG Audit Plc as auditor of the Company will be proposed at the next Annual General Meeting.

By Order of the Board of Directors,

Abhishek BhalotiaDirector and CEO

Registered Office:55, Baker Street,London W1U 7EU Date: 22nd April 2014


Independent Auditors’ ReportToThe Members ofKotak Mahindra (UK) Limited.

The financial statements of Kotak Mahindra (UK) Limited (the “Company”) as at 31st March, 2014, being a company registered in the UK, are audited by KPMG Audit Plc, Chartered Accountants, London and we have been furnished with their audit report dated 17th April, 2014.

We are presented with the accounts in Indian Rupees prepared on the basis of aforesaid accounts to comply with requirements of section 212 of the Companies Act, 1956. We give our report hereunder:

Report on the Financial Statements

We have audited the accompanying financial statements of Kotak Mahindra (UK) Limited, which comprise the Balance Sheet as at 31st March 2014, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

The Company’s Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub‐section (3C) of section 211 of the Companies Act, 1956 (“The Act”) read with the General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013 and in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) inthecaseoftheBalanceSheet,ofthestateofaffairsoftheCompanyasat31stMarch2014;

(b) inthecaseoftheStatementofProfitandLoss,ofthelossfortheyearendedonthatdate;and

(c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

Report on Other Legal and Regulatory Requirements

In view of the facts specified in Para 1 and 2 herein above, the requirements of Companies (Auditor’s Report) Order, 2003, report under section 227(3) of the Act, report on directors disqualification in terms of clause (g) of sub‐section (1) of section 274 of the Companies Act, 1956 and payment of cess under section 441A of the Companies Act, 1956 are not applicable.

For V.C. Shah & Co. Chartered AccountantsFirm Registration No.109818W

A.N. Shah.Place: Mumbai PartnerDate: 25th April, 2014 Membership No.: 42649


Balance Sheet as at 31st March, 2014

Particulars Note No. As at 31 March 2014

As at 31 March 2013

` `

I. EQUITY AND LIABILITIES

1 Shareholders’ funds

(a) Share capital 3.1 70,078,422 70,078,422

(b) Reserves and surplus 3.2 820,823,156 944,137,833

2 Non-current liabilities

(a) Long-term borrowings 3.3 4,991,519 4,125,117

(b) Long-term provisions 3.4 5,737,477 15,583,810

3 Current liabilities

(a) Short-term borrowings 3.5 239,660,000 -

(b) Trade payables 2,733,376,630 1,114,865,463

(c) Other current liabilities 3.6 6,221,980 24,530,838

(d) Short-term provisions 3.7 62,482,707 44,851,418

TOTAL 3,943,371,891 2,218,172,901

II. ASSETS

1 Non-current assets

(a) Fixed assets

Tangible assets 3.8 10,974,131 23,213,133

(b) Long-term loans and advances 3.9 13,906,960 11,458,828

2 Current assets

(a) Trade receivables 3.10 2,521,588,962 699,458,588

(b) Cash and bank balance 3.11 1,370,989,111 1,447,152,872

(c) Short-term loans and advances 3.12 23,918,719 34,413,035

(d) Other current assets 3.13 1,994,008 2,476,445

TOTAL 3,943,371,891 2,218,172,901

Significant Accounting Policies and Notes to Accounts 2 & 3

In terms of our report of even date For and on behalf of the Board of Directors

For V. C. Shah & Co.

Chartered Accountants

A. N. Shah Abhishek Bhalotia Gijo Joseph

Partner Director Director

Mumbai

Dated: 25th April, 2014 Dated: 22nd April, 2014


Statement of Profit and loss for the year ended 31st March 2014

Particulars Note No. For the year ended 31st March, 2014

For the year ended 31st March, 2013

` `

I. Revenues from operations

(a) Service Income (net) 559,791,400 658,045,603

(b) Interest Income 3.14 13,476,538 16,116,841

II. Other income 3.15 66,704 692,194

III. Total Revenue 573,334,642 674,854,638

IV. Expenses:

Employee cost 3.16 565,238,448 540,649,675

Finance cost 3.17 4,154,260 1,828,581

Depreciation and Amortization 3.8 17,951,896 16,578,983

Other expenses 3.18 212,029,210 251,244,045

Total expenses 799,373,814 810,301,284

V. PROFIT/(LOSS) BEFORE TAX (226,039,172) (135,446,646)

VI. Tax expense:

(a) Current tax 4,378,243 -

(b) Deferred tax - -

4,378,243.00 -

VII. PROFIT/(LOSS) FOR THE YEAR (230,417,415) (135,446,646)

VIII. Earnings/(loss) per equity share (in `):

Basic and Diluted 3.21 (240.27) (141.24)

Significant Accounting Policies and Notes to Accounts 2 & 3






Mumbai



Cash Flow Statement for the year ended 31st March, 2014

Particulars For the year ended 31st March, 2014


` `

Cash Flow from Operating Activities

Net Profit/(Loss) before taxation (226,039,172) (135,446,646)

Adjustments for:

- Interest Income (19,921) (57,308)

- Gain on sale of Fixed Asset - (148,415)

- Interest Expenses 3,073,211 656,868

- Exchange Adjustments 105,438,800 71,038,556

- Interest on Fixed deposit (13,456,617) (16,059,533)

- Depreciation 17,951,896 16,578,983

Operating Profit before Working Capital Changes (113,051,803) (63,437,495)

Adjustments for:

(Increase) / Decrease in Long-term loans and advances (2,448,132) 10,009,847

(Increase) / Decrease in Trade receivables (1,822,130,374) (183,657,043)

(Increase) / Decrease in Short-term loans and advances (1,240,458) (418,763)

(Increase) / Decrease in Other current assets 255,753 813,601

Increase / (Decrease) in Long-term provisions (9,846,333) 4,237,102

Increase / (Decrease) in Trade payables 1,618,511,167 516,347,285

Increase / (Decrease) in Other current liabilities (18,308,858) 13,997,471

Increase / (Decrease) in Short-term provisions 17,631,289 13,407,433

Cash Generated from Operations (330,627,749) 311,299,438

Direct taxes paid 7,356,531 (1,938,794)

NET CASH FLOW FROM OPERATING ACTIVITIES (A) (323,271,218) 309,360,644

Cash Flow from Investing Activities

Fixed deposits placed (608,573,562) (81,427,500)

Purchase of Fixed Assets (3,182,554) (16,609,050)

Proceeds from sale of Fixed Asset - 148,415.00

Interest on Fixed deposit 13,683,301 16,059,533

Interest Income on Term Loan 19,921 57,308

NET CASH FLOW FROM INVESTING ACTIVITIES (B) (598,052,894) (81,771,294)


Particulars For the year ended 31st March, 2014


` `

Cash Flow from Financing Activities

Short term borrowings from bank 239,660,000 -

Interest Expenses (3,073,211) (656,868)

NET CASH FLOW USED IN FINANCING ACTIVITIES (C) 236,586,789 (656,868)

Net Increase in Cash and Cash Equivalents (A + B + C) (684,737,323) 226,932,482

Cash and Cash Equivalents at the beginning of the year 1,365,725,372 1,138,792,890

Cash and Cash Equivalents at the end of the year 680,988,049 1,365,725,372

(684,737,323) 226,932,482

Notes:

1 The Cash Flow Statement has been prepared under the ‘Indirect Method’ as set out in the Accounting Standard -3 on Cash Flow Statements notified under the Companies (Accounting Standard) Rules, 2006 “as amended”

2 Figures in brackets indicate cash outflow.

3 The previous year’s figures have been re-grouped, wherever necessary in order to conform to current year’s presentation.

This is the Cash Flow Statement referred to in our report of even date For and on behalf of the Board of Directors





Mumbai


Cash Flow Statement for the year ended 31st March, 2014


Notes Forming Part of the Financial Statements for the Year Ended 31St March, 2014

1 Organisation and Nature of Business

The Company’s primary focus is investment management, broker dealing and corporate finance. As a broker dealer the Company arranges deals in bonds as well as in depository receipts. The Company is authorised and regulated by the Financial Services Authority (“FSA”) and is a member of the London Stock Exchange (“LSE”). The Company has two branches – Dubai (regulated by the Dubai Financial Services Authority) and Singapore (regulated by the Monetary Authority of Singapore).

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

2 Significant Accounting Policies:

2.1 Basis of Preparation

The Financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notified under Section 211(3C) of the Companies Act, 1956 (“the 1956 Act”) (which continue to be applicable in respect of Section 133 of the Companies Act, 2013 (“the 2013 Act”) in terms of General Circular 15/2013 dated 13 September, 2013 of the Ministry of Corporate Affairs) and the relevant provisions of the 1956 Act/ 2013 Act, as applicable.

2.2 Conversion to Indian Rupees

For the purpose of accounts, all income and expense items are converted at the average rate of exchange applicable for the period. All assets and liabilities are translated at the closing rate as on the Balance Sheet date. The Share Capital is carried forward at the rate of exchange prevailing on the transaction date. The resulting exchange difference on account of translation at the year end is transferred to Translation Reserve Account and the said account is being treated as “Reserves and Surplus”.

2.3 Use of estimates

The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates.

2.4 Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Company, and the revenue can be reliably measured. Commission, fees and other revenue are invoiced and recognised on an accrual basis. Interest income is recognised in the income statement as accrued. Premium or discount is amortised or accreted on debt securities over the maturity period of such investments using effective interest rate method.

2.5 Fixed Assets

Fixed assets are stated net of depreciation. Depreciation has been provided on Straight Line Method over an estimated useful life between three and five years. The rates of depreciation are determined after considering the management’s estimation of the useful life of the asset.

Furniture and Fittings 3 years

Computer & Software 3 years

Office Equipment 5 years

Motor Vehicles 3 years

Leasehold Improvements 3 years

2.6 Investments

Investments are classified into long term investments and current investments. Investments which are intended to be held for more than one year are classified as long term investments and investments which are intended to be held for less than one year are classified as current investments. Long-term investments are stated at cost less other than temporary diminution. Current investments are valued at cost or market value / fair value which ever is lower.

2.7 Leases

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.

2.8 Cash and cash equivalent

For the purposes of the cash flow statement, cash and cash equivalent consists of cash in hand, bank balances and short-term, deposits with an original maturity of three months or less, net of outstanding bank overdrafts, if any.

10



2.9 Taxes

Current tax is expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date and any adjustments payable / refund received in respect of previous years.

Deferred Tax is recognized, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the differences between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.

Deferred tax assets arising mainly on account of carry forward of losses and unabsorbed depreciation under tax laws are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income against which such deferred tax assets can be realised. Deferred tax assets on account of other timing differences are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.

2.10 Earnings per share

Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the period.

For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.

2.11 Provisions and Contingencies

Provisionisrecognisedwhenthereisapresentobligationasaresultofpastevent;itisprobablethatanoutflowofresourceswillberequiredto settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

Contingent Liabilities are not recognized but are disclosed in the notes unless the outflow of resources is remote. Contingent assets are neither recognised nor disclosed in the financial statements.

2.12 Employee Share based payments

Cash-settled scheme:

The cost of cash-settled scheme (stock appreciation rights) is measured initially using intrinsic value method at the grant date taking into account the terms and conditions upon which the instruments were granted. This intrinsic value is amortised on a straight-line basis over the vesting period with a recognition of corresponding liability. This liability is remeasured at each balance sheet date up to and including the settlement date with changes in intrinsic value recognised in the statement of profit and loss under ‘Employee cost’.



3 NOTES TO ACCOUNTS

3.1 (a) Share capital

Share Capital As at 31 March 2014

As at 31 March 2013

` `

Authorised shares

1,000,000 (Previous year 1,000,000) Ordinary shares of £ 1 each £1,000,000 £1,000,000

Issued, Subscribed and fully Paid up

959,000 (Previous year 959,000) Equity Shares of £ 1 each 70,078,422 70,078,422

Total 70,078,422 70,078,422

(b) Equity shares

Reconciliation of equity share capital As at 31 March 2014

As at 31 March 2014

As at 31 March 2013

As at 31 March 2013

Quantity ` Quantity `

Share capital outstanding at the beginning of the year 959,000 70,078,422 959,000 70,078,422

Issued during the period - - - -

Share capital outstanding at the end of the year 959,000 70,078,422 959,000 70,078,422

(c) Terms/rights attached to equity shares

The Company has only one class of equity shares having a par value of £ 1 per share. Each holder of equity shares is entitled to one vote per share.

Each share holder is entitled to receive dividend as may be approved by Board/ Annual General Meeting. In the event of liquidation of the company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

(d) Shares held by holding/ultimate holding company and/or their subsidiaries/associates

Out of equity shares issued by the company, shares held by its holding company, ultimate holding company and their subsidiaries/ associates are as below:

Number of equity share As at 31 March 2014

As at 31 March 2013

Kotak Mahindra Bank Limited, the holding company 489,000 489,000

Kotak Mahindra (International) Limited, subsidiary of Kotak Mahindra Bank Limited 470,000 470,000

(e) Details of shareholders holding more than 5% shares in the company

Equity shares of £ 1 fully paid up

Particulars As at 31 March 2014 As at 31 March 2013

number % holding number % holding

Kotak Mahindra Bank Limited, holding company 489,000 50.99% 489,000 50.99%

Kotak Mahindra (International) Limited, subsidiary of Kotak Mahindra Bank Limited

470,000 49.01% 470,000 49.01%

12



3.2 Reserve and Surplus As at 31 March 2014

As at 31 March 2013

` `

a. Translation Reserve

Opening Balance 231,897,373 159,424,481

Additions/(deductions) during the period 107,102,738 72,472,892

Closing Balance 339,000,111 231,897,373

b. Surplus in the statement of profit and loss

Opening balance 712,240,460 847,687,106

Net Loss For the current year (230,417,415) (135,446,646)

Closing Balance 481,823,045 712,240,460

Total 820,823,156 944,137,833

3.3 Long-term borrowings

Unsecured

Loans from fellow subsidiary 4,991,519 4,125,117

Total 4,991,519 4,125,117

The long-term borrowing represents a long-term subordinated loan of ` 4,991,519 (Previous year ` 4,125,117) from the fellow subsidiary company, Kotak Mahindra (International) Limited. The loan is unsecured, interest-free and constitutes regulatory capital as approved by the Regulatory Authority - FSA. It is repayable upon giving or receiving two years notice to or from the fellow subsidiary company. No such notice had been given or received as at 31st March, 2014.

3.4 Long-term provisions

Provision for employee benefits

Stock Appreciation Rights (refer note 3.25) 5,737,477 15,583,810

Total 5,737,477 15,583,810

3.5 Short-term borrowings

Secured

Short term bank borrowings 239,660,000 -

Total 239,660,000 -

3.6 Other current liabilities

Annual Incentive - 23,999,750

GST Payable 2,601,262 366,645

Other payable 3,620,718 164,443

Total 6,221,980 24,530,838

3.7 Short-term Provisions

Provision for employee benefits:

Provision for gratuity 29,762,506 21,994,247

Provision for Stock Appreciation Rights (refer note 3.25) 26,869,443 16,694,650

Payable to statutory funds 5,850,758 6,162,521

Total 62,482,707 44,851,418



3.8 Fixed Asset

Gross Block Accumulated Depreciation Net Block

Balance as at 1st April,

2013

Additions Deduction / Adjustment*

Balance as at 31st

March, 2014

Balance as at 1st April,

2013

Depreciation charge for

the year

Deduction / Adjustment*

Balance as at 31st

March, 2014

Balance as at 31st March,

2014

Balance as at 31st

March, 2013

` ` ` ` ` ` ` ` ` `

Tangible Assets

Computer & Software 46,763,098 3,142,741 4,823,745 54,729,584 33,750,587 8,445,033 3,430,085 45,625,705 9,103,879 13,012,511

Furniture and Fixtures 49,613,562 29,192 5,145,273 54,788,027 39,706,208 9,313,107 4,040,532 53,059,847 1,728,180 9,907,354

Office equipment 3,415,869 10,621 354,178 3,780,668 3,122,601 193,756 322,239 3,638,596 142,072 293,268

Leasehold Improvements 2,672,692 - 277,190 2,949,882 2,672,692 - 277,190 2,949,882 - -

Total 102,465,221 3,182,554 10,600,386 116,248,161 79,252,088 17,951,896 8,070,046 105,274,030 10,974,131 23,213,133

Previous Year 81,512,904 16,609,050 4,343,267 102,465,221 59,817,256 16,578,983 2,855,849 79,252,088 23,213,133 21,695,648

* Deduction / adjustments include effect of translation reserve

3.9 Long Term Loans and Advances As at 31 March 2014

As at 31 March 2013

` `

Unsecured, considered good

a. Prepaid Expenses 228,635 -

b. Security Deposits 13,678,325 11,458,828

Total 13,906,960 11,458,828

3.10 Trade Receivables


Outstanding for a period less than six months from the date they are due for payment 2,521,588,962 699,458,588

Considered doubtful 6,257,222 1,357,125

Less: Provision for doubtful debts (6,257,222) (1,357,125)

Total - -

Total 2,521,588,962 699,458,588

3.11 Cash and bank balances

Cash and cash equivalent

Balances with banks:

On Current accounts* 632,259,092 588,904,803

Deposits with original maturity of less than three months 48,728,957 776,820,569

Other Bank Balances

Deposits with residual maturity of less than twelve months 690,001,062 81,427,500

Total 1,370,989,111 1,447,152,872

* Includes client money deposits aggregating to ` 548,565,407 (previous year ` 451,242,903) earmarked in a separate bank account held in the name of the Company

14



3.12 Short-term Loans and Advances As at 31 March 2014

As at 31 March 2013

` `


Loans to employees 628,089 2,018,198

Prepaid expenses 19,485,136 17,164,502

VAT Input Credit 1,699,535 1,416,598

Taxes - 11,734,774

Security Deposits 2,105,959 2,078,963

Total 23,918,719 34,413,035

3.13 Other current assets


Interest accrued on deposits 1,994,008 2,220,692

Other receivables - 255,753

Total 1,994,008 2,476,445

3.14 Interest Income For the year ended 31st March, 2014


` `

Interest income on loans 19,921 57,308

Interest income on deposits with banks 13,456,617 16,059,533

Total 13,476,538 16,116,841

3.15 Other Income

Profit on sale of Fixed Assets - 148,415

Miscellaneous income 66,704 543,779

Total 66,704 692,194

3.16 Employee Cost

Salaries, bonus and allowances 507,705,185 465,240,747

Contribution to statutory funds 26,962,125 25,484,379

Reimbursement of employee stock option expenses (467,345) 2,383,046

Expenses on stock appreciation rights 30,300,493 29,726,202

Staff welfare expenses 737,990 17,815,301

Total 565,238,448 540,649,675

3.17 Finance cost

Bank Charges 1,081,049 1,171,713

Interest on borrowings 3,073,211 656,868

Total 4,154,260 1,828,581



3.18 Other expenses As at 31 March 2014

As at 31 March 2013

` `

Rent, rates & taxes 37,654,500 32,634,222

Communication expenses 16,434,687 17,294,818

Printing and stationery 1,971,598 2,324,751

Repairs and maintenance 8,495,821 7,887,689

Advertising, business promotion and entertainment 2,609,816 4,866,687

Foreign exchange loss (net) 3,688,082 656,933

Travel expenses 15,572,352 25,104,973

Insurance 5,042,876 4,374,180

Electricity expenses 403,494 461,329

Professional and legal fees 71,472,611 110,524,857

Membership and subscription 9,268,002 10,364,644

Recruitment expenses 1,398,290 845,364

Dealing charges 28,252,287 24,964,725

Audit fees 8,087,589 8,142,473

Miscellaneous expenses 1,677,205 796,400

Total 212,029,210 251,244,045

3.19 The Company is the subsidiary of Kotak Mahindra Bank Limited (KMBL). The accounts have been prepared and audited to attach with the accounts of KMBL, the holding company to comply with the provisions of the Indian Companies Act, 1956.

3.20 The transactions have been converted into Indian Currency (Indian Rupees) for reporting and the rate applied is as per para 2.2 of the significant accounting policies

3.21 Earnings per equity share

Particulars As at 31 March 2014

As at 31 March 2013

` `

Earnings / (loss) used in the computation of basic and diluted earnings per share (A) (230,417,415) (135,446,646)

Weighted average number of equity shares used in computation of basic earnings per share (B)

959,000 959,000

Nominal value of Equity shares £1 £1

Basic and diluted earnings / (loss) per share (`) A/B (240.27) (141.24)

3.22 Leases

The total annual commitments of the Company under non-cancellable operating leases are as under:

Land and Building

Operating leases which expire :

Within one year 21,809,060 25,785,375

Between one to five years 34,570,955 9,771,300

16



3.23 Contingencies liabilities

During the year the Company’s banker have issued a guarantee for ` 95,165,000 (Previous year ` 87,440,000) in favour of the Monetary Authority of Singapore. No loss is expected on this guarantee at the Balance Sheet date

3.24 The Company has taken advantage of the exemptions in Financial Reporting Standard No. 8 Related party transactions, not to disclose transactions with Kotak Mahindra Bank Limited and other group companies as it is a subsidiary of Kotak Mahindra Bank Limited.

The following amounts are due from directors as at 31st March, 2014. Mr. V. Varadarajan ` Nil (Previous Year ` 2,341) Maximum balance due during the year is ` 88,083 (Previous Year ` 93,137)

Mr. Abhishek Bhalotia ` Nil (Previous Year ` 31,895) Maximum balance due during the year is ` 36,519 (Previous Year ` 65,710)

Mr. Gijo Joseph ` 299,890 (Previous Year ` 266,611) Maximum balance due during the year is ` 445,096 (Previous Year ` 730,646)

Mr. Hasan Askari ` Nil (Previous Year ` 22,629) Maximum balance due during the year is ` 56,036 (Previous Year ` 400,796)

Mr. Ruchit Puri ` Nil (Previous Year ` Nil) Maximum balance due during the year is ` Nil (Previous Year ` 2,243)

3.25 Stock Option Scheme

Kotak Mahindra Bank Limited, the Parent Company of Kotak Mahindra (UK) Limited has formulated and adopted the following Employee Stock Option Schemes (ESOS) in accordance with the SEBI (Employee Stock Option Scheme) Guidelines, 1999 issued by the Securities and Exchange Board of India (SEBI).

a) Kotak Mahindra Equity Option Scheme 2005

b) Kotak Mahindra Equity Option Scheme 2007

In accordance with SEBI (Employees Stock Option Scheme and Employee Stock Purchase) Guidelines, 1999 and the guidance note on “Accounting for Employee Share-based Payments” issued by the Institute of Chartered Accountants of India, the excess, if any, of the market price of share preceding the date of grant of the option under ESOPs over the exercise price of option is amortised on a straightline basis over the vesting period. The Company has reimbursed the Bank ` 467,345 (Previous year ` 2,383,046) during the year on account of such cost and the same is forming part of employee cost and included under the head ‘Employee Cost’.

Stock appreciation rights (SARs)

During the year, the Management had approved (SARs) to be granted to eligible employees as and when deemed fit. The SARs are to be settled in cash and will vest in the manner as provided in the scheme / grant letters to employees.

The contractual life (which is equivalent to the vesting period) of the SARs granted during the year ranges from 0.25 years to 3.38 years

Detail of activity under SAR is summarized below:

No. of SARs



Outstanding at the beginning of the year 169,824 154,160

Granted during the year 73,568 71,370

Exercised during the year 58,575 47,616

Lapsed during the year 22,595 3,360

Transferes during the year 16,876 4,730

Outstanding at the end of the year 145,346 169,824



Effect of share based payment to employees on the profit and loss account and on its financial position

Year ended March 31, 2014 2013

Total Employee Compensation Cost pertaining to share-based payment plans 29,833,148 32,109,248

Closing balance of liability for cash-settled options 32,606,920 32,278,460

Had the company recorded the compensation cost computed on the basis of fair valuation method instead of intrinsic value method, employee compensation cost would have been higher by ̀ 1,561,853 (Previous year higher by ̀ 7,707,064) and the loss after tax would have been higher (Previous year higher) by the same amount.

3.26 Previous years figures have been regrouped, reclassified wherever necessary to confirm with figures of the current year.






Mumbai


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