DRAFT LETTER OF OFFERISSUE OF [●] EQUITY SHARES OF FACE VALUE ` 5/- EACH (“RIGHTS SHARES”) FOR CASH AT A PREMIUM OF ` [●] PER RIGHTS SHARE AGGREGATING TO AN AMOUNT UPTO ` 1,000.00 CRORES BY BAJAJ FINSERV LIMITED (THE “COMPANY” OR THE “ISSUER”) TO THE ELIGIBLE EQUITY SHAREHOLDERS OF OUR COMPANY ON A RIGHTS BASIS IN THE RATIO OF [●] RIGHTS SHARES FOR EVERY [●] EQUITY SHARES HELD ON THE RECORD DATE, I.E. [●] (THE “ISSUE”). THE ISSUE PRICE OF EACH RIGHTS SHARE IS [●] TIMES THE FACE VALUE OF THE RIGHTS SHARE.

GENERAL RISKSInvestments in equity and equity related securities involve a high degree of risk and investors should not invest any funds in this Issue unless they can afford to take the risk of losing their investment. Investors are advised to read risk factors carefully before taking an investment decision in relation to this Issue. For taking an investment decision, investors must not rely on the Draft Letter of Offer and must rely on their own examination of the Issuer and the Issue including the risks involved. The securities have not been recommended or approved by the Securities and Exchange Board of India (“SEBI”), nor does SEBI guarantee the accuracy or adequacy of this document. Investors are advised to refer to the section titled “Risk Factors” on page 11 of the Draft Letter of Offer before making an investment in this Issue.

ISSUER’S ABSOLUTE RESPONSIBILITYThe Issuer, having made all reasonable inquiries, accepts responsibility for and confirms that the Draft Letter of Offer contains all information with regard to the Issuer and the Issue, which is material in the context of this Issue, that the information contained in the Draft Letter of Offer is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes the Draft Letter of Offer as a whole or any such information or the expression of any such opinions or intentions misleading in any material respect.

LISTINGThe Equity Shares of our Company are listed on the BSE Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”). Our Company has received in-principle approvals from the BSE and the NSE for listing the Rights Shares arising from this Issue through letters dated [●] and [●] respectively. For the purposes of the Issue, the Designated Stock Exchange shall be [●].

LEAD MANAGER TO THE ISSUE

JM Financial Institutional Securities Private Limited141, Maker Chambers III,Nariman Point, Mumbai - 400 021Tel: +91 22 6630 3030 / 3953 3030 Fax: +91 22 2204 7185Email: bfs.rights@jmfl.comInvestor Grievance ID: grievance.ibd@jmfl.com Contact Person: Lakshmi Lakshmanan Website: www.jmfl.comSEBI Registration No.: INM000010361

Karvy Computershare Private LimitedPlot Nos. 17-24, Vittal Rao Nagar,Madhapur, Hyderabad-500 081Tel: +91 40 4465 5000Toll Free No.: 1800 345 4001Fax: +91 40 2343 1551Email: bajajfinserv.rights@karvy.com Investor Grievance ID: igkcpl@karvy.com Contact Person: M. Murali KrishnaWebsite : http://karisma.karvy.com;SEBI Registration No.: INR000000221

REGISTRAR TO THE ISSUE

Bajaj Finserv Limited (the “Company”) on April 30, 2007 as a public limited company under the Companies Act, 1956, in the state of Maharashtra. Our Company obtained a certificate for commencement of business on May 7, 2007 from the Registrar of Companies, Maharashtra. The registered office of our Company is located at Bajaj Auto Limited Complex, Mumbai-Pune Road, Akurdi, Pune – 411 035 and the corporate office is located at Survey No. 208/1-B, 6th Floor, Behind Weikfield IT Park, Off Pune-Ahmednagar Road, Viman Nagar, Pune – 411 014. Company Secretary and the Compliance Officer: Sonal Ramanand Tiwari; Tel: +91 20 6610 7458; Fax: +91 20 6610 7380 E-mail: sonal.tiwari@bajajfinserv.in; Website: www.bajajfinserv.in. For details of changes in the name and registered office of our Company, please refer to the section titled “History and Certain Corporate Matters” on page 142 of the Draft Letter of Offer.

THE PROMOTERS OF OUR COMPANY ARE BAJAJ HOLDINGS & INVESTMENTS LIMITED, RAHULKUMAR KAMALNAYAN BAJAJ, MADHURKUMAR RAMKRISHNAJI BAJAJ, SHEKHARKUMAR RAMKRISHNAJI BAJAJ AND NIRAJKUMAR RAMKRISHNAJI BAJAJ

DRAFT LETTER OF OFFERJuly 17, 2012

For the Eligible Equity Shareholders of the Company only

BAJAJ FINSERV LIMITED

LAST DATE FOR REQUEST FOR SPLIT APPLICATION FORMS:

ISSUE PROGRAMISSUE OPENS ON : ISSUE CLOSES ON:

[l] [l] [l]

C M Y K

C M Y K

FOR PRIVATE CIRCULATION TO THE ELIGIBLE EQUITY SHAREHOLDERS OF OUR COMPANY ONLY

TABLE OF CONTENTS

SECTION I - GENERAL............................................................................................................................................1

DEFINITIONS AND ABBREVIATIONS....................................................................................................................1 PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA ..........................................8 FORWARD LOOKING STATEMENTS ...................................................................................................................10

SECTION II – RISK FACTORS .............................................................................................................................11

SECTION III – INTRODUCTION..........................................................................................................................33

SUMMARY OF FINANCIAL AND OPERATIONAL INFORMATION.................................................................33 SUMMARY OF INDUSTRY .....................................................................................................................................41 SUMMARY OF BUSINESS.......................................................................................................................................46 THE ISSUE .................................................................................................................................................................53 GENERAL INFORMATION......................................................................................................................................54 CAPITAL STRUCTURE ............................................................................................................................................60 OBJECTS OF THE ISSUE .........................................................................................................................................77 BASIS FOR THE ISSUE PRICE ................................................................................................................................80 STATEMENT OF GENERAL TAX BENEFITS .......................................................................................................82

SECTION IV – ABOUT OUR COMPANY ............................................................................................................89

INDUSTRY OVERVIEW...........................................................................................................................................89 OUR BUSINESS.......................................................................................................................................................113 REGULATIONS AND POLICIES ...........................................................................................................................131 HISTORY AND CERTAIN CORPORATE MATTERS..........................................................................................142 OUR SUBSIDIARIES AND JOINT VENTURE......................................................................................................148 OUR MANAGEMENT.............................................................................................................................................152 OUR PROMOTERS..................................................................................................................................................166 OUR GROUP ENTITIES..........................................................................................................................................172 DIVIDEND POLICY ................................................................................................................................................190

SECTION V – FINANCIAL INFORMATION ....................................................................................................191

FINANCIAL STATEMENTS...................................................................................................................................191 MARKET PRICE INFORMATION .........................................................................................................................319 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ..........................................................................................................................................................321 DISCLOSURES ON EXISTING FINANCIAL INDEBTEDNESS .........................................................................353

SECTION VI – LEGAL AND OTHER INFORMATION ..................................................................................354

OUTSTANDING LITIGATIONS AND OTHER DEFAULTS................................................................................354 GOVERNMENT AND OTHER APPROVALS .......................................................................................................444 STATUTORY AND OTHER INFORMATION.......................................................................................................457

SECTION VII – OFFERING INFORMATION...................................................................................................467

TERMS OF THE ISSUE...........................................................................................................................................467

SECTION VIII –STATUTORY AND OTHER INFORMATION .....................................................................504

MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION OF BAJAJ FINSERV LIMITED ......................504 MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION..................................................................529

DECLARATION .....................................................................................................................................................531

1

SECTION I – GENERAL

DEFINITIONS AND ABBREVIATIONS

The following list of defined terms is intended for the convenience of the reader only and is not exhaustive.

Company Related Terms

Term Description

“Bajaj Finserv” or “BFS” or “the Company” or “our Company”

Unless the context otherwise requires, refers to Bajaj Finserv Limited, a public limited company incorporated on April 30, 2007 under the Companies Act and having its registered office located at Bajaj Auto Complex, Mumbai-Pune Road, Akurdi, Pune - 411 035

Articles / Articles of Association Articles of Association of our Company

Auditor Statutory Auditors of our Company, namely, M/s Dalal & Shah

BAFDL / Joint Venture Company Bajaj Allianz Financial Distributors Limited, a company incorporated on March 12, 2001 under the Companies Act and having its registered office located at GE Plaza, Airport Road, Yerawada, Pune - 411 006

BAGIC Bajaj Allianz General Insurance Company Limited, a company incorporated on September 19, 2000 under the Companies Act and having its registered office located at GE Plaza, Airport Road, Yerawada, Pune - 411 006

BALIC Bajaj Allianz Life Insurance Company Limited, a company incorporated on March 12, 2001 under the Companies Act and having its registered office located at GE Plaza, Airport Road, Yerawada, Pune - 411 006

BFINSEC Bajaj Financial Securities Limited, a company incorporated on April 7, 2010 under the Companies Act and having its registered office located at Bajaj Auto Limited Complex, Mumbai-Pune Road, Akurdi, Pune - 411 035

BFINSOL Bajaj Financial Solutions Limited, a company incorporated on June 13, 2008 under the Companies Act and having its registered office located at Bajaj Auto Limited Complex, Mumbai-Pune Road, Akurdi, Pune - 411 035

BFL Bajaj Finance Limited, a company incorporated on March 25, 1987 under the Companies Act and having its registered office located at Bajaj Auto Limited Complex, Mumbai-Pune Road, Akurdi, Pune - 411 035

BHIL Bajaj Holdings & Investment Limited a company incorporated on November 29, 1945 under the Indian Companies Act, 1913 and having its registered office located at Bajaj Auto Limited Complex, Mumbai-Pune Road, Akurdi, Pune - 411 035

Board / Board of Directors The board of directors of our Company or a duly constituted committee thereof

CRISIL CRISIL Limited

Director(s) Any or all director(s) of our Company, as the context may require

Equity Share(s) The equity share(s) of our Company having a face value of ` 5/- each

Group Entities Companies, firms and ventures, promoted by the Promoters of our Company, irrespective of whether such entities are covered under section 370 (1)(B) of the Companies Act or not and as further detailed in the section titled “Our Group Entities” on page 172 of this Draft Letter of Offer

2

Term Description

ICRA ICRA Limited

Memorandum / Memorandum of Association

Memorandum of Association of our Company

“our Group” or “we” or “us” or “our”

Unless the context otherwise requires, refers to our Company, its Subsidiaries and Joint Venture Company on a consolidated basis

Promoter Group Entities and individuals as disclosed by our Company under Clause 35 of the listing agreement with the Stock Exchanges, including entities and individuals who, as on date, do not hold any Equity Shares in our Company

Promoter(s) The promoters of our Company as defined in Regulation 2(za) of the SEBI Regulations, namely, Bajaj Holdings & Investment Limited, Rahulkumar Kamalnayan Bajaj, Madhurkumar Ramkrishnaji Bajaj, Shekharkumar Ramkrishnaji Bajaj and Nirajkumar Ramkrishnaji Bajaj

Registered Office The registered office of our Company located at Bajaj Auto Complex, Mumbai-Pune Road, Akurdi, Pune – 411 035

Scheme of Arrangement The scheme of arrangement between BHIL, Bajaj Auto Limited and our Company sanctioned by the Bombay High Court vide an order passed on December 18, 2007. For further details in connection with the Scheme of Arrangement please refer to the section titled “History and Certain Corporate Matters” on page 142 of this Draft Letter of Offer

Strategic Business Undertaking Strategic Business Undertaking as defined under the Scheme of Arrangement, comprising the financial services business (inclusive of insurance, consumer finance, and financial products distribution business) and the wind mill undertaking of BHIL prior to the coming into effect of the Scheme of Arrangement. For further details in connection with the Scheme of Arrangement please refer to the section titled “History and Certain Corporate Matters” on page 142 of this Draft Letter of Offer

Subsidiaries The subsidiaries of our Company within the meaning of Section 4 of the Companies Act, namely, Bajaj Allianz General Insurance Company Limited, Bajaj Allianz Life Insurance Company Limited, Bajaj Finance Limited, Bajaj Financial Securities Limited and Bajaj Financial Solutions Limited

Issue Related Terms

Term Definition

Abridged Letter of Offer The abridged letter of offer to be sent to Eligible Equity Shareholders of our Company with respect to this Issue in accordance with the provisions of the SEBI Regulations and the Companies Act

Allotment Unless the context otherwise requires, the allotment of Rights Shares pursuant to the Issue to Allottees

Allottee(s) The successful applicant(s) eligible for Allotment of Rights Shares pursuant to the Issue

Applicant(s) Eligible Equity Shareholders and/or Renouncees who are entitled to apply or have applied for Rights Shares under the Issue, as the case may be

ASBA Investor Applicant(s) who:

• holds the Equity Shares in dematerialised form as on the Record Date and has applied towards his/her Rights Entitlements or additional Rights Shares in the Issue in dematerialised form;

• has not renounced his/her Rights Entitlements in full or in part;

3

Term Definition

• is not a Renouncee; and • applies through a bank account maintained with one of the SCSBs Please note that in accordance with the provisions of the SEBI circular bearing number CIR/CFD/DIL/1/2011 dated April 29, 2011 all QIBs and Non-Institutional Investors, must mandatorily invest through the ASBA process. All Retail Individual Investors complying with the above conditions may optionally apply through the ASBA process

ASBA / Application Supported by Blocked Amount

The application (whether physical or electronic) used compulsorily by QIBs and Non Institutional Investors and optionally by Retail Individual Investors subscribing to the Issue and authorizing an SCSB to block application money(ies) in a bank account

Bankers to the Issue The bankers to the Issue being [●]

Business Day Any day, other than Saturday or Sunday, on which commercial banks are open for business in Mumbai

Composite Application Form / CAF

The form used by an Investor to make an application for allotment of Rights Shares pursuant to the Issue

Consolidated Certificate In case of holding of Rights Shares in physical form, our Company would issue one certificate for the Rights Shares allotted to one folio

Controlling Branches Such branches of the SCSBs which coordinate applications under the Issue by the ASBA Investors with the Registrar to the Issue and the Stock Exchanges and a list of which is available at http://www.sebi.gov.in/pmd/scsb.pdf

Designated Branches Such branches of the SCSBs which shall collect CAF from ASBA investor and a list of which is available on http://www.sebi.gov.in/pmd/scsb.pdf

Designated Stock Exchange / DSE

[●]

Draft Letter of Offer / DLOF This Draft Letter of Offer dated July 17, 2012

Eligible Equity Shareholder(s) A holder(s) of Equity Share(s) as on the Record Date

Investor(s) The Eligible Equity Shareholders, Renouncees and any other persons eligible to subscribe to the Issue

Issue Issue of [●] Rights Shares, for cash, at a premium of ` [●] per Rights Share, aggregating to an amount upto ` 1,000.00 crores, to Eligible Equity Shareholders on a rights basis in the ratio of [●] Rights Shares for every [●] Equity Shares held on the Record Date

Issue Closing Date [●]

Issue Opening Date [●]

Issue Price ` [●] per Rights Share

Issue Proceeds The monies received by our Company pursuant to the Rights Shares which are Allotted pursuant to the Issue

Lead Manager JM Financial Institutional Securities Private Limited

Letter of Offer / LOF The letter of offer dated [●]

Non Institutional Investor(s) All Investors including sub-accounts of FIIs registered with SEBI, which are foreign corporate or foreign individuals, that are not QIBs or Retail Individual Investors and who have applied for Rights Shares for an cumulative amount more than ` 2,00,000.00

Non Retail Investor(s) Investors who are QIBs or Non Institutional Investors

QIB(s) / Qualified Institutional Buyer(s)

Public financial institutions as specified in Section 4A of the Companies Act, scheduled commercial banks, mutual fund registered with SEBI, FIIs and sub-account registered with SEBI, other than a sub-account which is a foreign corporate or foreign individual, multilateral and bilateral development financial institution, venture capital fund registered with SEBI, foreign venture capital investor registered with SEBI, state industrial development corporation, insurance company registered with IRDA, provident fund with minimum corpus of ` 25.00 crores, pension fund with minimum corpus of ` 25.00 crores,

4

Term Definition

National Investment Fund set up by the Government of India and insurance funds set up and managed by the army, navy or air force of the Union of India and insurance funds set up and managed by the Department of Posts, India

Record Date [●]

Registrar to the Issue or Registrar Karvy Computershare Private Limited

Renouncee(s) Any person(s) who have/has acquired Rights Entitlements from Eligible Equity Shareholders or renouncees thereof

Retail Individual Investor(s) Individual Investors who have applied for Rights Shares for an amount not more than ` 2,00,000.00 (including HUFs applying through their Karta)

Rights Entitlement The number of Rights Shares that an Eligible Equity Shareholder is entitled to in proportion to his/ her shareholding in our Company as on the Record Date

Rights Shares The equity shares of face value ` 5/- each of our Company offered and to be issued and allotted pursuant to the Issue

SAF(s) Split Application Form(s)

Self Certified Syndicate Bank or SCSB

The banks which are registered with SEBI under the SEBI (Bankers to an Issue) Regulations, 1994 and offers services of ASBA, including blocking of bank account and a list of which is available on http://www.sebi.gov.in/pmd/scsb.pdf

Stock Exchange(s) The BSE and the NSE where our Equity Shares are presently listed and traded

Conventional and General Terms

Term Description

Bombay High Court / High Court of Bombay

Hon’ble High Court of Judicature at Bombay

Companies Act The Companies Act, 1956, as amended

Copyright Act The Copyright Act, 1955, as amended

Crore Ten million

Depositories Act The Depositories Act, 1996, as amended

Depository A depository registered with SEBI under the SEBI (Depository and Participant) Regulations, 1996, as amended from time to time

Financial Year / Fiscal / FY The period of 12 months ending March 31 of that particular year, unless otherwise stated

Indian GAAP The generally accepted accounting principles in India

Industrial Policy The industrial policy and guidelines issued by the Ministry of Industry, GoI

IT Act The Income Tax Act, 1961, as amended

Listing Agreement The equity listing agreements signed between our Company and the Stock Exchanges, namely the NSE and the BSE

Relevant Member State Member State of the European Economic Area which has implemented the Prospectus Directive at any relevant time

Rupees, ` and Rs. The lawful currency of India

SEBI Act The Securities and Exchange Board of India Act, 1992, as amended

SEBI Regulations The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended

Securities Act The United States Securities Act of 1933, as amended

Takeover Regulations The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended

Trademarks Act The Trademarks Act, 1999, as amended

5

Business and Industry Related Terms:

Term Description

ALM Asset Liability Management

ALM Guidelines Guidelines for ALM systems in relation to NBFCs, that are applicable to all NBFCs through a master circular on miscellaneous instructions to all NBFCs dated July 1, 2011

ATMs Automated Teller Machines

CAR Capital Adequacy Ratio computed on the basis of applicable RBI requirements

Commercial Loans Construction equipment financing and infrastructure financing and vendor financing operations of BFL

Consumer Finance Two-wheeler and three-wheeler financing, consumer durables financing, personal loans, salaried loans and co-branded credit card operations of BFL

CRR Cash Reserve Ratio

CRT Cathode Ray Tube

DIPP Department of Industrial Policy and Promotion

DTH Direct to Home

DVD Digital Versatile Disc / Digital Video Disc

EMI Existing Member Identification

FDI Foreign Direct Investment

FDI Policy Consolidated Policy on Foreign Direct Investment in India effective from April 10, 2012, notified by Circular 1 of 2012 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India

FEMA Foreign Exchange Management Act, 1999, as amended and any circulars, notifications, rules and regulations issued pursuant to the provisions thereof

FEMA Regulations Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended from time to time

FIPB Foreign Investment Promotion Board

GIC General Insurance Corporation of India

GWP Gross Written Premium

IIP Index of Industrial Production

IMF International Monetary Fund

Insurance Act The Insurance Act, 1938, as amended

IRDA Act The Insurance Regulatory and Development Act, 1999, as amended

KYC Norms Customer identification procedure for opening of accounts and monitoring transactions of suspicious nature followed by NBFCs for the purpose of reporting it to appropriate authority

LCD Liquid Crystal Display

LED Light-Emitting Diode

MSMEs Micro, Small and Medium Enterprises

NBFC Non-Banking Financial Company as defined under Section 45-IA of the RBI Act, 1934

NBFC-D NBFC registered as a deposit accepting NBFC

NBFC-ND NBFC registered as a non-deposit accepting NBFC

NBFC-ND-SI NBFC registered as a Systemically Important NBFC-ND

Non-Deposit Accepting NBFC Directions

Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, as amended

6

Term Description

PPP Public Private Partnership

Prudential Norms Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, as amended

Public Deposit Directions The Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998, as amended

PDI Perpetual Debt Instruments

PMLA The Prevention of Money Laundering Act, 2002; as amended

PML Rules Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005, as amended

RBI Act The RBI Act, 1934, as amended

REC Renewable Energy Certificates

SIAM Society of Indian Automobile Manufacturers

SLR Statutory Liquidity Ratio

Small Business Loans Loans against property and home loan, loans against securities and unsecured business loan operations of BFL

SMS Short Message Service

TV Television

Abbreviations

Term Description

AGM Annual General Meeting

BSE The BSE Limited

CAF Composite Application Form

CAGR Compounded Annual Growth Rate, calculated using the following formula:

Where V(t0) : start value, V(tn) : finish value, tn − t0 : number of years

CDSL Central Depository Services (India) Limited

CFO Chief Financial Officer

DP Depository Participant

EGM Extraordinary General Meeting

EPS Earnings per share

FDI Foreign Direct Investment

FEMA Foreign Exchange Management Act, 1999, as amended and any circulars, notifications, rules and regulations issued pursuant to the provisions thereof

FI Financial Institution

FII(s) Foreign Institutional Investors registered with SEBI under applicable laws

FIPB Foreign Investment Promotion Board

GDP Gross Domestic Product

GoI Government of India

HUF Hindu Undivided Family

IFRS International Financial Reporting Standards

IND AS Indian Accounting Standards (Ind AS) 101 “First-time Adoption of Indian Accounting Standards”

IRDA Insurance Regulatory and Development Authority, India

ICAI Institute of Chartered Accountants of India

ISIN International Securities Identification Number

IT Information Technology

7

Term Description

ITeS Information Technology enabled Services

ITAT Income Tax Appellate Tribunal

MICR Magnetic Ink Character Recognition

Mn Million

MoU Memorandum of Understanding

N.A. / NA Not Applicable

NAV Net Asset Value

NECS National Electronic Clearance Service

NEFT National Electronic Fund Transfer

NRI Non Resident Indian

NSDL National Securities Depository Limited

NSE The National Stock Exchange of India Limited

OCB(s) Overseas Corporate Body(ies)

PAN Permanent Account Number

PIB Press Information Bureau

QFI Qualified Foreign Investor

R&D Research and Development

RBI Reserve Bank of India

RoC Registrar of Companies, Maharashtra, located at Pune

RTGS Real Time Gross Settlement

SEBI Securities and Exchange Board of India

STT Securities Transaction Tax

US/USA United States of America

USD or US$ United States Dollar

UNCITRAL United Nations Commission on International Trade Law

VAT Value Added Tax

w.e.f. With effect from

8

PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA

Financial Data

Unless otherwise stated, the financial data in this Draft Letter of Offer is derived from the restated standalone financial information of our Company, as at and for the years ended March 31, 2008, 2009, 2010, 2011 and 2012, (“Restated Standalone Financials”), and the restated consolidated financial information of our Company, as at and for the years ended March 31, 2008, 2009, 2010, 2011 and 2012 (“Restated Consolidated Financials”). The Restated Standalone Financials, the Restated Consolidated Financials and the related notes and annexures thereto included elsewhere in this Draft Letter of Offer, have been prepared in accordance with the Companies Act and the SEBI Regulations. The degree to which the financial statements included in this Draft Letter of Offer will provide meaningful information is entirely dependent on the reader’s level of familiarity with Indian accounting practices, Indian GAAP, the Companies Act and the SEBI Regulations. Any reliance by persons not familiar with Indian accounting practices, Indian GAAP, the Companies Act and the SEBI Regulations would accordingly be limited. Our Company’s Fiscal Year ends on March 31 of that year, so all references to a particular Fiscal are to the twelve-month period ended March 31 of that year. Indian GAAP may differ significantly in certain respects from IFRS and U.S. GAAP. Neither the information set forth in our financial statements nor the format in which it was presented should be viewed as comparable to information prepared in accordance with IFRS or US GAAP or any accounting principles. Currency of Presentation

All references to “Rupees” or “Rs.” or “INR” are to Indian Rupees, the official currency of the Republic of India. All references to “$”, “US$”, “USD”, “U.S.$”, “U.S. Dollar(s)” or “US Dollar(s)” are to United States Dollars, the official currency of the United States of America, “EURO”, “€”, the official currency of the European Union.

The Draft Letter of Offer contains translations of certain USD and other currency amounts into Indian Rupees that have been presented solely to comply with the requirements of Para VIII(G) of Part A to Schedule VIII of the SEBI Regulations. These translations should not be construed as a representation that those USD or other currency amounts could have been, or can be converted into Indian Rupees, at any particular rate.

The following table sets forth, for the periods indicated, information with respect to the exchange rate between the Rupee and the USD (in Rupees per USD) and the exchange rate between the Rupee and the Euro (in Rupees per Euro) based on the reference rates released by the Reserve Bank of India. No representation is made that the Rupee amounts actually represent such amounts in USD or Euro or could have been or could be converted into USD or Euro at the rates indicated, any other rates or at all.

As at March 31 `̀̀̀ per 1 USD `̀̀̀ per 1 Euro

2008 39.97 63.09

2009 50.95 67.48

2010 45.14 60.56

2011 44.65 63.24

2012 51.16 68.34

Source: Reserve Bank of India

9

Market Data

Unless otherwise stated, industry data used throughout the Draft Letter of Offer has been obtained from industry publications. These industry publications generally state that the information contained therein has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although our Company and the Lead Manager believe that industry data used in the Draft Letter of Offer is reliable, such data has not been verified by any independent source.

10

FORWARD LOOKING STATEMENTS

Our Company has included statements in the Draft Letter of Offer which contain words or phrases such as “may”, “will”, “aim”, “believe”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “seek to”, “future”, “objective”, “goal”, “project”, “should”, “potential” and similar expressions or variations of such expressions, that are or may be deemed to be forward looking statements. All forward looking statements are subject to risks, uncertainties and assumptions about our Company that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associated with our expectations with respect to, but not limited to, factors affecting:

• General economic and business environment in India; • Our ability to successfully implement our strategy and growth plans; • Our ability to compete effectively and access funds at competitive cost; • Effectiveness and accuracy of internal controls and procedures; • Changes in domestic or international interest rates and liquidity conditions; • Defaults by customers resulting in an increase in the level of non-performing assets in our portfolio; • Rate of growth of our loan assets and ability to maintain concomitant level of capital; • Downward revision in credit ratings; • Potential mergers, acquisitions or restructurings and increased competition; • Change in tax benefits and incentives and other applicable regulations, including various tax laws; • Our ability to retain our management team and skilled personnel; • Our ability to write life and general insurance policies; • Change in laws and regulations that apply to NBFCs, insurance companies and financial services

companies in India;

• Interest rates and our ability to enforce security; and • Change in political conditions in India.

For further discussion of factors that could cause our actual results to differ, please refer to the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 11 and 321 respectively of the Draft Letter of Offer. Neither our Company, the Lead Manager nor any of their respective affiliates has any obligations to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBI requirements, our Company and the Lead Manager will ensure that investors in India are informed of material developments until the date of Allotment of Rights Shares pursuant to the Issue.

11

SECTION II – RISK FACTORS

An investment in equity and equity related securities involves a high degree of risk. You should carefully consider all

of the information in this Draft Letter of Offer, including the risks and uncertainties described below, before making

an investment. Our Company’s actual results could differ materially from those anticipated in the section titled

“Forward Looking Statements” on page 10 of this Draft Letter of Offer as a result of certain factors, including the

considerations described below. If any of the following risks actually occur, our business, financial condition,

results of operations and prospects could suffer, the trading price of our Equity Shares and the Rights Shares could

decline and you may lose all or part of your investment. You should also pay particular attention to the fact that we

are governed in India by a legal and regulatory environment which in some material respects may be different from

that which prevails in other countries.

In this section, any reference to "we", "our" and "us" refers to our Company, our Subsidiaries and our Joint Venture

Company on a consolidated basis, as the context may so require.

Unless specified or quantified in the relevant risk factors detailed below, we are not in a position to quantify the

financial or other implications of any of the risks described in this section.

A. INTERNAL RISK FACTORS

Key internal risk factors in connection with our Company

1. Our Company’s ability to raise capital through loans, debt securities and other debt instruments has been restricted by the RBI. Our inability to raise capital from other sources, in a timely manner or at all, could

adversely affect our growth, operations and profitability. The RBI has pursuant to a letter dated June 27, 2012, exempted our Company till March 31, 2013, from complying with the ceilings prescribed in the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, in connection with group/single exposure norms subject inter-alia to a condition that our Company should not access public funds, both directly and indirectly, through public deposits, commercial paper, debentures, inter-corporate deposits, bank finance and loans from financial institutions. The businesses of our Subsidiaries are capital intensive and may from time to time require our Company to infuse funds through debt and/or equity in our Subsidiaries. If we are unable to raise sufficient capital through equity issuances or other alternative means in a timely manner or at all, we may not be in a position to fund the capital requirements of our Subsidiaries which may affect our overall consolidated growth, operations and profitability.

2. RBI has advised our Company to submit a definite and meaningful roadmap for dilution of our Company’s stake in our insurance subsidiaries, namely, BAGIC and BALIC to 50% of the equity share

capital thereof, as per the requirements of an RBI circular dated May 27, 2011. If RBI does not grant

the exemption and/or special permission sought by our Company in this regard, we may be compelled to

reduce the stake of our Company in BAGIC and/or BALIC. Such a reduction of our stake may affect our

consolidated financial results.

Pursuant to a letter dated May 30, 2012, the RBI has advised our Company to submit a definite and meaningful roadmap for dilution of our Company’s stake in our insurance subsidiaries, namely, BAGIC and BALIC, to 50% of the equity share capital thereof as per the requirements of an RBI circular dated May 27, 2011. Our Company has responded to the abovementioned RBI letter pursuant to a letter dated June 21, 2012, requesting the RBI to continue the special permission to our Company to continue holding 74% in the equity share capital of BAGIC and BALIC on the continuation of the condition that our Company does not borrow and/or have access to public deposits, loans or any other forms of debt. If RBI does not grant the exemption sought by our Company in this regard, we may be compelled to sell our Company’s stake in BAGIC and/or BALIC to the extent as may be prescribed by RBI. Such a reduction of our stake could reduce our share of profits in the said Subsidiaries and/or may also result in BALIC and/or

12

BAGIC ceasing to remain a subsidiary of our Company, which in turn could affect our consolidated financial results.

3. The generation and sale of the electricity generated by our wind turbine generators, is subject to various regulatory and statutory requirements, and market conditions, which, if unfavorable, could inter alia

adversely impact our ability to sell electricity to third parties on favorable terms, or at all, and

consequently adversely impact our operations and profitability. The electricity generated by our 138 wind turbine generators is subject to various regulatory and statutory requirements inter-alia including the applicable provisions the Electricity Act, 2003, as amended and rules made thereunder. Applicable regulatory and statutory requirements and/or market conditions could inter alia adversely impact our ability to sell electricity to third parties on favorable terms, or at all, which could adversely impact our operations and profitability.

4. Our Company’s wind power business is seasonal in nature. Changes in weather patterns may adversely affect our ability to operate our wind power business.

Our Company’s income from power generation increased at a CAGR of 19.2% to ` 54.65 crore for Fiscal 2012 from ` 27.07 crore for Fiscal 2008. For Fiscal 2012 our Company also registered revenues of ` 28.94 crore from sale of renewable energy certificates. Our wind power business is susceptible to several factors including changes in wind-flow, weather conditions and is also seasonal in nature. Sudden or unexpected changes in environmental and meteorological conditions could reduce the productivity of our wind turbines. Climatic weather patterns, whether seasonal or for an extended period of time, that result in lower, inadequate and/or inconsistent wind speed to propel the wind turbines may render them incapable of generating adequate, or any, electrical energy.

5. We rely on a third party for the on-going maintenance of our wind power generation equipment. If such

third party becomes unwilling or unable to perform its obligations, our wind power generation

operations may suffer and our results of operations and financial condition may be adversely affected. Our Company has entered into various operation and maintenance agreements with Suzlon Energy Limited for the operation and maintenance of our wind power generation equipment. If Suzlon Energy Limited becomes unwilling or unable to perform its obligations under these agreements, and if we are unable to find a suitable alternative in a favourable, timely manner or at all, our wind power generation operations may suffer and our results of operations and financial condition may be adversely affected.

6. Any changes in regulatory policies and/or incentives in connection with renewable energy certificates (“RECs”), or our inability to maintain our registration for RECs, may adversely affect our profitability.

All 138 wind mills have been registered with National Load Despatch Centre through REC Renewable Energy Certificate Registry and are eligible for RECs from April 1, 2011. For Fiscal 2012 our Company also registered revenues of ` 28.94 crore from sale of renewable energy certificates. The Central Electricity Regulatory Commission has notified the Central Electricity Regulatory Commission (Terms and Conditions for recognition and issuance of Renewable Energy Certificate for Renewable Energy Generation) Regulations, 2010, pursuant to a notification dated January 14, 2010, which provides the modalities for RECs in the Indian electricity sector. Our profitability may be adversely affected if we are unable to maintain our registration with the Renewable Energy Certificate Registry for RECs or in case of any unfavourable changes in regulatory policies and incentives currently available to our Company in connection with RECs.

7. Damages to wind mills due to accidents or natural causes such as lightning and earthquakes may disrupt electricity production, which could adversely affect our operations and profitability. Our Company’s wind mills operate on open land and are directly exposed to natural events such as earthquakes and thunder storms. If some wind mills are damaged due to such natural causes, the required

13

repair and restoration may take a long time and hence reduce the power generation from our wind mills, which could in turn adversely affect our operations and profitability.

8. Our inability to evacuate electricity through the grids of Maharashtra State Electricity Board (“SEB”),

on account of accidents, break downs, natural causes or otherwise may disrupt generation of electricity

from our wind mills. The electricity generated from our wind mills is evacuated through the grids of the SEB. Our inability to evacuate electricity through these grids for any reason whatsoever, could adversely affect the generation of electricity at our wind mills, which in turn, could adversely affect our operations and profitability.

9. Our Company, our Subsidiaries, our Directors, our Promoters and our Group Companies are involved

in various legal and other proceedings. An adverse outcome in such proceedings may have a material adverse effect on our reputation, business, results of operations and financial condition. Our Company, our Subsidiaries, our Directors, our Promoters and our Group Companies are currently involved in a number of legal proceedings in India. These legal proceedings are pending at different levels of adjudication before various courts and tribunals. Decisions in such proceedings adverse to our interests may have an adverse effect on our business, results of operations and financial condition. A summary of these proceedings are as follows:

S.

No.

Type of Proceeding Company Aggregate

Amount

Involved (In

`̀̀̀ Crores)

Directors Aggregate

Amount

Involved (In

`̀̀̀ Crores)

Promoters

who are not

Directors

Aggregate

Amount

Involved (In

`̀̀̀ Crores)

Group

Entities

Aggregate

Amount

Involved (In

`̀̀̀ Crores)

Pending Proceedings Initiated Against the Aforementioned Persons/Entities

1. Criminal Proceedings

Nil Nil Nil Nil Nil Nil 4 Not Quantifiable

2. Civil Proceedings 1 Not Quantifiable

1 5.00 1 5.00 2,042 823.64

3. Tax Proceedings Nil Nil Nil Nil 16 167.05 155 133.24

4. Arbitration Proceedings

Nil Nil Nil Nil Nil Nil 5 108.03

5. Past Penalties Imposed

Nil Nil 1 Negligible 1 0.01 Nil Nil

S.

No.

Type of Proceeding Company Aggregate

Amount

Involved (In

`̀̀̀ Crores)

Directors Aggregate

Amount

Involved (In

`̀̀̀ Crores)

Promoters

who are not

Directors

Aggregate

Amount

Involved (In

`̀̀̀ Crores)

Group

Entities

Aggregate

Amount

Involved (In

`̀̀̀ Crores)

Pending Proceedings Initiated By the Aforementioned Persons/Entities

1. Criminal Proceedings

Nil Nil Nil Nil Nil Nil 73 8.21

2. Civil Proceedings 5 6.49 Nil Nil 4 10.00 126 187.96

3. Tax Proceedings 3 21.13 Nil Nil 17 154.97 104 493.32

4. Arbitration Proceedings

Nil Nil Nil Nil Nil Nil 6 11.46

14

S.

No.

Type of Proceeding Number of Proceedings Aggregate Amount Involved

(In `̀̀̀ Crores)

Pending Proceedings Initiated Against and By our Subsidiaries and Joint Venture Company

• Criminal Proceedings 14,626 52.52

• Civil Proceedings 8,046 6,319.34

• Tax Proceedings 31 281.33

• Arbitration Proceedings 8,518 47.22

• Past Penalties Imposed 22 0.01

• Legal Proceedings for Violation of Statutory/Regulatory Requirements: 2 Not Quantifiable

• Show Cause Notices and Potential Legal Proceedings 8 0.70

For further details of these legal proceedings, please refer to the section titled “Outstanding Litigation and Material Developments” on page 354 of this Draft Letter of Offer.

10. Our contingent liabilities, in our financial statements as on March 31, 2012, aggregated to ` 7.85 crores

on a standalone basis and ` 77.31 crores on a consolidated basis, respectively. If such contingent liabilities materialize, our financial condition could be adversely affected. Our contingent liabilities, in our financial statements as on March 31, 2012, aggregated to ` 7.85 crores on a standalone basis and ` 77.31 crores on a consolidated basis, respectively. In the event that any of these contingent liabilities materialize, our results of operation and financial condition may be adversely affected. As of March 31, 2012, we had the following contingent liabilities on a standalone basis:

(in ` Crores)

S.No Particulars As at March 31,

2012

1 Claims against the Company not acknowledged as debts 7.71

2 Income tax under dispute – Appeal by Company 0.14

Total 7.85 As of March 31, 2012, we had the following contingent liabilities on a consolidated basis:

(in ` Crores)

S.No Particulars As at March 31,

2012

1 Claims against the Company not acknowledged as debts 14.94

2 Taxes, duties and other sums due 50.99

3 Claims under policies, not acknowledged as debts 11.38

Total 77.31

11. The offer, issuance and allotment of Rights Shares to Non Residents would be subject to our Company obtaining appropriate clarification/approval from the FIPB. The Consolidated FDI Policy provides that foreign investment in a NBFC is only allowed under the automatic route if the NBFC is engaged in any of the 18 specified activities (“Specified NBFC Activities”). Our Company’s activities do not fall within the parameters of the Specified NBFC Activities. Accordingly, pursuant to a letter dated June 6, 2012, our Company has sought a clarification/approval from the FIPB in connection with the offer for the issuance and allotment of Rights Shares to Non Residents. Accordingly, our Company will not able to issue and allot Rights Shares to Non Residents, unless the aforesaid clarification/approval from the FIPB in this regard is received prior to the date of the opening of the Issue.

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12. Changes in technology may render our current technologies obsolete or require us to make substantial capital investments. The cost of implementing new technologies or expanding capacity could be significant and could adversely affect our results of operations.

Our Subsidiaries’ businesses are subject to rapid and significant changes in technology. Although we strive to keep our technology in accordance with the latest international technological standards, the technologies currently employed may become obsolete or may be subject to competition from new technologies in the future. The cost of implementing new technologies or expanding capacity could be significant and could adversely affect our results of operations.

13. Our Company has from time to time engaged in a variety of transactions with related parties. There can

be no assurance that entering into such transaction with related parties will be the most beneficial option

for our Company.

Our Company has from time to time engaged in a variety of transactions with related parties. For details of the related party transactions of our Company, please refer to our “Restated Standalone Financials” and our “Restated Consolidated Financials” on pages 192 and 236 respectively, of this Draft Letter of Offer. Our Company’s policy on transactions with related parties is that such transactions are conducted at arm’s length on normal commercial terms in the ordinary and normal course of business. Our Company may enter into additional transactions with its related parties in the future. Although regulations in India do require disclosure of related party transactions in a listed company’s financial statements, such regulations do not require shareholders’ approval or an independent assessment of connected or related party transactions. As a result, there is no independent verification that the terms of such transactions or that any of our Company’s transactions with its related parties will benefit our Company.

14. The objects of the Issue are based on the internal estimates of our management, and have not been appraised by any bank or financial institution. Any inability on our part to effectively utilize the Issue

Proceeds could adversely affect our financial results.

The funds raised under this Issue will be used for (a) investment by way of subscription to equity shares and/or equity linked securities of our Subsidiary, Bajaj Finance Limited, and/or by conversion of equity linked securities into equity shares of BFL (so as to augment BFL’s capital base for the purpose of capital adequacy requirements), and (b) for general corporate purposes. The objects of the Issue are based on management estimates and have not been appraised by any bank or financial institution. Any inability on our part to effectively utilize the Issue proceeds could adversely affect our financial results. Utilization of Issue proceeds would be disclosed to our Company’s shareholders in the manner required under the Listing Agreement. For further details, please refer to the section titled “Objects of the Issue” on page 77 of this Draft Letter of Offer.

15. We have experienced negative operating cash flows in Fiscal 2012. Any significant or sustained negative operating cash flows in the future could adversely affect our financial condition and the trading price of

our Equity Shares. The details of our cash flows from operating activities on a standalone and a consolidated basis for Fiscal 2010, Fiscal 2011 and Fiscal 2012 are as follows:

(in ` Crores)

Sl.

No.

Particulars For the Year

ended March

31, 2012

For the Year

ended March

31, 2011

For the Year

ended March

31, 2010

1. Cash Flows From Operating Activities (on a Standalone Basis)

(3.45) 161.15 88.42

2. Cash Flows From Operating Activities (on a Consolidated Basis)

(4,053.68) 239.40 6,660.13

We have experienced a cash out flow from operating activities of ` 3.45 crores on a standalone basis and a cash out flow of ` 4,053.68 crores on a consolidated basis, respectively, in Fiscal 2012.

16

Any cash outflows from operating activities in the future could adversely affect our financial condition and the trading price of our Equity Shares. In the event that the proposed Issue is not completed or is delayed and we are unable to make other alternative arrangements to raise funds to meet our requirements, it could have an adverse effect on our business, financial condition and results of operations.

16. Of the 23 properties used by our Company, we own 20 properties while 3 properties are occupied by our Company on lease and/or as shared office space. Any termination of the lease(s) or the other relevant

agreements in connection with such properties or our failure to renew the same in a favourable, timely

manner, or at all, could adversely affect our activities. Currently, except 20 (twenty) properties which are owned by our Company, none of the other properties used by our Company for the purposes of our business activities, including the premises where the registered office of our Company is located, is owned by us. Termination of the lease or other relevant agreements in connection with such properties which are not owned by us or our failure to renew the same, on favourable conditions, in a timely manner, or at all, could require us to vacate such premises at short notice, could adversely affect our operations, financial condition and profitability.

17. An increase in Allianz SE’s shareholding in BAGIC and/or BALIC, pursuant to the insurance joint venture agreements, could result in a reduction of the stake of our Company in BAGIC and/or BALIC.

Such a reduction of our stake may affect our consolidated financial results.

Pursuant to the joint venture agreements dated March 13, 2001 between our Company and Allianz SE in connection with BALIC and BAGIC, Allianz SE is entitled to increase its share holding in BAGIC and/or BALIC, if the foreign direct investment related restrictions in India in connection with insurance companies are relaxed in the future under applicable regulatory requirements. Any such increase in shareholding of Allianz SE in BAGIC and/or BALIC could reduce our share of profits in the said Subsidiaries and/or may also result in BALIC and/or BAGIC ceasing to remain a subsidiary of our Company. Accordingly, any such increase in shareholding of Allianz SE in BAGIC and/or BALIC may affect our consolidated financial results.

18. Any risk factor which materially affects the profitability, operations or solvency/capital adequacy position of the Subsidiaries of our Company could also affect the consolidated financial position and/or

results of operations of our Company.

Our Company’s consolidated results include significant amounts arising out of the profits and results of our Subsidiaries, notably BALIC, BAGIC and BFL. Any factor which materially affects the profitability, operations or solvency/capital adequacy position of our Subsidiaries could also affect the consolidated financial position and results of operations of our Company.

19. Conflicts of interest may arise out of common business objects shared by our Company and certain of our Group Companies. There can be no assurance that such Group Entities will not compete with our

existing business or any future business that we may undertake or that their interests will not conflict

with ours. Our Promoters have interests in other companies and entities promoted by them, whose main objects and ancillary objects in their respective memoranda of association permit such entities to carry out activities similar to those of our Company and such entities may compete with us. Our Group Entities Bajaj Auto Holdings Limited, Bachhraj & Company Private Limited, Bajaj Sevashram Private Limited, Baroda Industries Private Limited, Jamnalal Sons Private Limited, Jeewan Limited, Kamalnayan Investments & Trading Private Limited, Madhur Securities Private Limited, Niraj Holdings Private Limited, Rahul Securities Private Limited, Rupa Equities Private Limited, Sanraj Nayan Investments Private Limited, Shekhar Holdings Private Limited and Sidya Investments Limited, have been incorporated with objects and/or activities similar to those of our Company. As a result, conflict of interests may arise in allocating or addressing business opportunities and strategies amongst our Company and the aforenamed entities in circumstances where our interests differ from theirs. There can be no assurance that the interests of our

17

Promoters will be aligned in all cases with the interests of our minority shareholders or the interests of our Company. There can be no assurance that the aforenamed entities will not compete with our existing business or any future business that we may undertake or that their interests will not conflict with ours.

20. Some of our Subsidiaries and Group Entities have incurred losses in the past.

Two of our Subsidiaries, namely BFINSOL and BFINSEC and 12 of our Group Entities have incurred losses after taxation in at least one of the last three financial years as per their respective audited financial statements. For further details please refer to the sections titled “Our Subsidiaries and Joint Venture” and “Our Group Entities” on pages 148 and 172 respectively of this Draft Letter of Offer. If BFINSOL and BFINSEC fail to improve their financial performance, our overall profitability on a consolidated basis could be impacted, which in turn may affect the valuation of our Company and Subsidiaries as a whole. Similarly if our Group Entities are unable to improve or sustain their financial performance the reputation of our group could be adversely affected.

Key internal risk factors associated with the general and life insurance businesses as carried on by

BAGIC and BALIC 21. The IRDA has in the past penalized BAGIC and BALIC for alleged non-compliances with certain

regulatory requirements. Any penalties and/or adverse regulatory restrictions that may be imposed on

BAGIC and/or BALIC in the future could adversely impact the reputation, operations and profitability of

BAGIC and/or BALIC, which could consequently adversely affect our Company’s profitability. Pursuant to an order dated June 7, 2011, the IRDA imposed a fine of ` 0.05 crores against BAGIC on alleged grounds of (a) failure to exercise due diligence at the time of grant and subsequent renewal of a license to a particular corporate agent, in terms of the IRDA circular dated July 14, 2005 in connection with guidelines for grant of licenses to corporate agents, and (b) failure to refer the applications for the aforesaid licenses to the IRDA in terms of the IRDA (Licensing of Corporate Agents) Regulations, 2002. BAGIC has also received 2 show cause notices from the IRDA in connection with alleged violations of the (Protection of Policyholder’s Interests) Regulations, 2002 and IRDA (Licensing of Corporate Agents) Regulations, 2002, to which BAGIC has responded and is awaiting further communication from the IRDA. Pursuant to an order dated August 21, 2007, IRDA imposed a fine of ` 0.05 crores against BALIC on alleged grounds of not obtaining prior approval from the IRDA for opening various branch offices as per the requirements of the Insurance Act. Pursuant to an order dated March 18, 2011 IRDA imposed a fine of ` 0.10 crores against BALIC on alleged grounds of failure to comply with file and use guidelines and violation of guidelines on Unit Linked Insurance Policies as issued by the IRDA. BALIC has also received 3 show cause notices from the IRDA in connection with alleged violations of the IRDA’s file and use guidelines and unit linked insurance products regulations and circulars, to which BALIC has responded and is awaiting further communication from the IRDA. Any failure on the part BALIC and/or BAGIC, to comply with the requirements of the IRDA in the future could subject BALIC and/or BAGIC to regulatory penalties and/or adverse regulatory restrictions, which could adversely affect the operations, profitability and reputation of BALIC and/or BAGIC, and in turn adversely affect our Company’s profitability.

22. BAGIC and BALIC are both exposed to risks associated with entering into reinsurance arrangements, which include inter alia, risks associated with inadequate reinsurance, the inability to obtain reinsurance

on favorable terms, in a timely manner or at all, and, risks associated with any default or breach in

connection with such arrangements.

Both BAGIC and BALIC seek to mitigate their risks by entering into reinsurance arrangements with reinsurance companies such as the General Insurance Corporation of India Limited as well as with other foreign reinsurers. Reinsurance is a mechanism by which BAGIC and BALIC seek to minimize their risks by sharing the same with a panel of carefully selected reinsurers. Consequently however, both BAGIC and BALIC are exposed to risks associated with entering into such reinsurance arrangements, which include

18

inter alia, risks associated with inadequate reinsurance, the inability to obtain reinsurance on favorable terms, in a timely manner or at all, and, risks associated with any default and/or breach in connection with such arrangements and risks associated with legal enforcement of foreign reinsurer’s obligations under the contract of reinsurance. Any and all of these risks could have an adverse impact on the operations and profitability of BAGIC and/or BALIC.

23. Unlimited liability towards third party motor insurance claims together with inability to freely price the

premium for the third party motor insurance products could adversely affect the operations, financial

condition and profitability of BAGIC. Under the Motor Vehicles Act, there is no statutory limit on the liability arising in connection with third party motor vehicle insurance claims. Further, the pricing of third party motor vehicle insurance is as per the tariffs prescribed by the IRDA from time to time. Further under applicable statutory and/or regulatory requirements a general insurance company is not allowed to reject an application for third party motor vehicle insurance. Accordingly, should the premiums from third party motor vehicle insurance policies continue to be inadequate to cover the losses arising in connection with third party motor vehicle insurance claims, the operations, financial condition and profitability of BAGIC could be adversely affected.

24. BAGIC may not generate sufficient profits in Fiscals 2013 and 2014 to absorb the amortized losses in connection with the discontinuance of the erstwhile Indian Motor Third Party Insurance Pool

(“IMTPIP”), which could necessitate infusion of capital in BAGIC by the shareholders of BAGIC,

including by our Company. Inability to raise such capital in a timely manner or at all could adversely

affect the operations and profitability of BAGIC.

Pursuant to an order dated December 23, 2011, the IRDA dismantled the erstwhile Indian Motor Third Party Insurance Pool (“IMTPIP”), with effect from April 1, 2012. Subsequently vide order dated January 3, 2012, IRDA has reassessed the ultimate loss ratios for the IMTPIP at 159%, 188%, 200% and 213% for the financial years ended March 31, 2008, 2009, 2010 and 2011 respectively as against the earlier determined loss ratio of 153%. IRDA further required all insurers to recognize and provide for the IMTPIP liabilities either immediately in the Fiscal 2012 or expense the same on a straight line basis over the three years beginning Fiscal 2012. BAGIC has opted to amortize the losses over three years. Should BAGIC not generate sufficient profits in Fiscals 2013 and 2014 to absorb the amortized losses in connection with the discontinuance of the erstwhile IMTPIP, BAGIC may require further infusion of capital. Inability of BAGIC to raise such capital in a timely manner or at all could adversely affect the operations and profitability of BAGIC.

25. Inability on the part of BAGIC to meet its obligations under the recently introduced ‘Declined Risk Pool mechanism’ in connection with standalone third party commercial vehicle insurance policies could

adversely affect BAGIC’s operations, financial condition and profitability.

Under the Declined Risk Pool mechanism established by the IRDA vide their order dated December 23, 2011, insurers are required with effect from April 1, 2012, to write each year a minimum percentage of standalone Commercial Vehicle Third Party business, depending on their market share from motor business and overall market share from all segments. Should BAGIC fail to write its prescribed quota of such business, it may have to share in the losses, if any, of the Declined Risk Pool, together with other insurers who may not have met their respective quotas. In such an event, should the Declined Risk Pool report a significant loss, the share of losses from the Declined Risk Pool may affect the profitability and/or solvency position of BAGIC.

26. Accumulation of claims arising in connection with events such as natural disasters, acts of terror,

pandemics and/or war could lead to a situation where BAGIC and/or BALIC are faced with numerous

claims at the same time. BAGIC and BALIC operations and profitability would be adversely affected if

(a) they do not have any reinsurance in connection with any such claims, (b) the reinsurance that they

do have is inadequate to cover the amounts of the aforesaid claims, or, (c) the amounts claimed from

reinsurers are not received in a timely manner or at all.

19

When natural catastrophes occur or in case of strikes, riots and acts of terror, or if there are pandemics affecting a large number of people, BAGIC and/or BALIC can have large number of claims or have claims of high severity. BAGIC and/or BALIC may not have reinsured itself in connection with every claim that could be raised against them pursuant to any insurance policies granted by them. Further, where BAGIC and/or BALIC have reinsured themselves in connection with such claims, there can be no certainty that the reinsurance is adequate to cover the amounts of such accumulation of claims, or that amounts claimed from reinsurers will be received in a timely manner, or at all. The operations and profitability of BAGIC and/or BALIC could be adversely affected by the inadequacy or lack of reinsurance and/or any inability to recover claimed amounts from reinsurers in a timely manner, or at all. In such an event, infusion of capital may be necessitated in BAGIC and/or BALIC and inability of BAGIC and/or BALIC to raise such capital in a timely manner, or at all, could adversely affect their respective operations and profitability.

27. BAGIC is exposed to risks associated with its involvement in and contributions to insurance pools which

could have an adverse impact on the cash flows, operations and/or profitability of BAGIC.

BAGIC is a member of the Terrorism Pool, in which all Indian general insurance companies are mandatorily required to participate. This pool is a multilateral reinsurance arrangement. BAGIC is exposed to the risk of losses that this pool may suffer, to the extent of BAGIC's contribution to this pool. BAGIC's share of the pool's profits and losses can also be subject to various compliance requirements, including, but not limited to tax and legal compliance requirements. Apart from the above, BAGIC is also exposed to the risks associated with the compulsory participation in pools which may be set up in future by the regulator. Any and all of these factors could have an adverse impact on the cash flows, operations and/or profitability and/or solvency position of BAGIC.

28. BALIC’s results of operations and solvency position could be adversely impacted if the actual experience

is at variance from actuarial assumptions and/or statistical estimates. BALIC’s product pricing and reserving for liabilities are based on actuarial assumptions and statistical estimates (inter alia in connection with mortality, investment returns, acquisition expenses, management expenses, reinsurance and tax rates). BALIC’s results of operations and solvency position could be adversely impacted if the actual experience is at variance from such assumptions and/or statistical estimates.

29. The income portfolios of BAGIC and/or BALIC are largely focused on fixed income securities. Any

defaults by the investee companies in connection with these investments could have an adverse impact

on the profitability of BAGIC and/or BALIC. BAGIC and BALIC’s investments are predominantly focused in debt securities including corporate and government debt securities. Any significant events affecting any of the investee companies, or companies in a particular sector, default in payment of interest and/or repayment of principal by any of the investee companies or a sovereign default by the Central or State Government, could have a material adverse effect on the value of the investment portfolios of BAGIC and/or BALIC, their income and expenses and their solvency position. Further, these investment portfolios may also be adversely affected by illiquidity, unfavorable market prices and/or unfavorable applicable interest rates.

30. The profitability and/or solvency position of BAGIC and/or BALIC may be adversely impacted by

increased competition, coupled with a free pricing regime for competitive products. With the introduction of free pricing / de-tariffing, the market is witnessing significant reductions in prices of insurance products which were previously regulated. The fall in prices exposes both BAGIC and BALIC to the risk of under-pricing their products. The pricing of the products sold by BAGIC and BALIC are set using statistical models, which involve making certain assumptions on various factors that may affect the costs, work across large numbers and over a number of years, and consequently, any deviation from statistical expectations could result in the products being under-priced, thereby adversely impacting profitability and/or solvency position.

20

31. BAGIC and BALIC are in highly regulated industries and must constantly adapt to both changing economic conditions, and, new and changing regulatory requirements. Some of the present statutory and

regulatory requirements could have an adverse impact on the otherwise potential profitability of these

companies. Further, any inability to comply with these requirements in a cost effective and timely

manner, or at all, could adversely affect the operations and/or profitability of BAGIC and BALIC.

BAGIC and BALIC are regulated by the IRDA, and a variety of associated regulations under the Insurance Act, 1938, as well as under various Central and State Government statutory and regulatory requirements. The current regulatory environment exposes BAGIC and BALIC to numerous compliance as well as procedural requirements, and any regulatory non-compliance could attract warnings, penalties, suspension/cancellation of license/s and other penal action. Further, the ability of BAGIC and BALIC to conduct their businesses is dependent upon the continued renewal of their registration certificate by the IRDA. Any inability to comply with current and future regulatory requirements in an adequate and timely manner could result in the imposition of restrictions on operations, additional costs, and/or the requirement for raising additional capital, for BAGIC and/or BALIC, which could in turn, adversely affect their operations and/or profitability.

Some of the present statutory and regulatory requirements could have an adverse impact on the otherwise potential profitability of these companies. To illustrate, for participating life insurance policies which are sold by BALIC, statutorily, BALIC may transfer up to one ninth of the allocation of bonus to participating policy holders to the shareholders account. Any reduction in such statutory percentage could affect BALIC’s profitability.

Further, the launch of any new product requires a considerable amount of expenditure and planning, both before and after the launch of such products. IRDA could in the future, withdraw approvals for such products after BALIC and/or BAGIC have launched and/or spent a considerable amount of time and money for the same, which would adversely affect both the operations and/or profitability and/or solvency position of BALIC and/or BAGIC. Further, the business of BAGIC is of insuring assets owned by individuals and businesses, as well as their liabilities and future expenditure commitments. On a similar vein, the growth of BALIC’s business depends on the amount that individuals and businesses put aside for savings and the relative after-tax returns from life insurance products vis-à-vis other substitutes or alternatives. The growth in BAGIC’s and/or BALIC’s businesses may be adversely affected by changing statutory and/or regulatory requirements as well as changing socio-economic factors such as the growth in gross domestic product, disposable incomes, changes in investor or policyholder confidence and demography of the population.

32. Regulatory clearances and restrictions could adversely impact the number of branches that BAGIC and/or BALIC can maintain and/or expand to. Any such restrictions, and/or any delay in receiving the

required clearances for the opening of such branches could adversely impact the operations and/or

profitability of BAGIC and/or BALIC. BAGIC and BALIC, like all insurance companies, have to follow prescribed procedures when they seek to open any branches. Should the regulations change so as to restrict the number of branches that can be opened by an insurer or if the time for approving new branches is extended significantly by the regulator, the growth prospects and speed of growth of BAGIC and/or BALIC could be adversely affected.

33. Any failure on the part of BAGIC and/or BALIC to manage their cash requirements adequately and in a

timely manner, could adversely affect their operations and/or profitability.

BAGIC and/or BALIC may have a situation where the sale of investments to meet liabilities could expose it to losses and/or impairment of its solvency position. Associated with this is also a liquidity risk and some of the investments of BAGIC and/or BALIC, such as in real estate, in illiquid bonds and/or in structured notes may not be easily or quickly saleable in the market.

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34. Any increase in the minimum solvency margin prescribed by IRDA could necessitate fresh infusion of capital in BAGIC and/or BALIC by their respective shareholders (including our Company), failing

which the operations and profitability of BAGIC and/or BALIC may be adversely affected.

Solvency requirement norms of general insurance companies are laid down by IRDA, and any increase in the minimum prescribed solvency margin, may necessitate infusion of fresh capital in BAGIC and/or BALIC by its shareholders, including our Company. Further, the growth of the insurance business or significant losses of BAGIC and/or BALIC will impact their respective solvency requirements and/or margins, and may necessitate additional capital infusion. The operations and/or profitability of BAGIC and/or BALIC could be adversely affected by their inability to raise capital in a timely manner or at all.

35. Legal proceedings are intrinsic to the nature of the businesses carried out by BAGIC and BALIC. There can be no assurance of a favourable outcome in such legal proceedings.

An insurance policy being a contract, non compliance of any of the conditions of such policies, either by BAGIC and/or BALIC and their respective contractual counter parties could result in lengthy and costly legal proceedings, the outcome of which cannot be assured. In the normal course of business, BAGIC and BALIC have a number of legal proceedings initiated both by and against them. Notably, the number of legal proceedings that BAGIC and BALIC are involved in, are likely to increase with the growth of their respective businesses. Further, any significant change in the manner in which courts view insurance compensation claims could additionally adversely affect current and prospective claims against BAGIC and/or BALIC.

36. BAGIC and BALIC are exposed to a variety of operational risks which could adversely affect their

operations and/or profitability.

BAGIC and BALIC are exposed to a variety of operational risks including fraud, gross negligence and/or willful misconduct by employees, customers and/or intermediaries. Operational risks include the breach of standard operating procedures, inadequate security and back-ups for software and hardware related computer systems, inadequate reserving for claims, any faulty or unenforceable title over assets or the inability to renew its leased premises in a favorable and timely manner or at all. A combination of these risks could adversely affect the operations and/or profitability and/or solvency position of BAGIC and/or BALIC.

37. Identifying, maintaining, and managing adequate internal risk management policies, is critical to the businesses of BAGIC and BALIC. Any inadequacy or failure in this regard could adversely affect the

operations and/or profitability of BALIC.

The policies and procedures of the employees of BAGIC and BALIC to identify, monitor and manage risks may not at all time be fully effective. It seeks to monitor and control the risk exposure through a variety of financial, underwriting, operating and legal procedures as well as use of statistical models. Nonetheless, the effectiveness of the ability to manage risk exposure cannot be completely or accurately predicted or fully assured. There could be material deviations from the assumptions built into statistical risk models, which could also affect the operations, profitability and/or solvency margin of BAGIC and/or BALIC.

Key internal risk factors associated with the lending business as carried on through BFL

38. BFL’s financial performance is particularly vulnerable to interest rate volatility.

Interest rates and fluctuations thereof are highly sensitive to many factors which are beyond BFL’s control, including the monetary policies of the RBI, de-regulation of the financial services sector in India, domestic and international economic and political conditions, inflation and other factors. Consistent increase in BFL’s cost of borrowing may adversely affect BFL’s ability to pass on such increases to its customers. Further higher interest rates may also affect the quality of BFLs assets including

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risks of higher defaults and rising NPAs. Alternatively falling interest rates may lead to higher pre-payments and may expose BFL to reinvestment risks. Further fluctuations in interest rates may affect BFLs ability to manage its assets and liabilities effectively and may expose BFL to liquidity risks and duration risks.

39. The risk of non-payment or default by borrowers may adversely affect BFL’s financial condition and results of operations. If BFL is unable to manage the level of NPAs in its loan assets, its financial

position and results of operations may suffer. Any lending activity is exposed to credit risk arising from the risk of default and non-payment by borrowers. BFL’s loan portfolio may grow as a result of its expansion in existing as well as new products across various business segments. This may expose BFL to an increasing risk of defaults as its portfolio expands. Beside macroeconomic conditions, BFL also faces risks specific to each segment of its business, which may also result in increased defaults. In particular, the unsecured lending segment is susceptible to higher probability of default. BFL cannot be certain, and cannot assure you, that it will be able to maintain or improve its collections and recoveries in relations to NPAs across its business segments, or otherwise control its level of NPAs in the future. Moreover, as BFL’s loan portfolio matures, it may experience greater defaults in principal and/or interest payments. Thus, if BFL is not able to control or reduce its level of NPAs, the overall quality of its loan portfolio may deteriorate and its results of operations may be adversely affected. BFL cannot be certain that its risk management systems will continue to be sufficient or that additional risk management policies for individual borrowers will not be required. Failure to continuously monitor the loan contracts, particularly for individual borrowers, could adversely affect its business, future financial performance and results of operations.

If any of the information, as obtained from customers and third parties, is misleading or inaccurate, the procedures that BFL follows may not be adequate or sufficient to provide accurate data as to the creditworthiness of its customers. In the event BFL does not suitably identify the risk of default, or if BFL relies on information that may not be true or may be materially misleading, its business, future financial performance and results of operations may be materially and adversely affected. BFL has made provisions of ` 132.50 crores and ` 153.20 crores in respect of gross NPAs as of March 31, 2012 and March 31, 2011 for all its business segments. BFL maintains a provision against standard assets which are over and above the provisioning requirements prescribed by the RBI. As on March 31, 2012, the provisions against standard assets were ` 32.25 crores. As on March 31, 2012, BFL also made additional provisions against loss estimations of delinquent receivables which were not yet NPAs of ` 18.89 crores. There can be no assurance that there will be no further deterioration in BFL’s provisioning coverage as a percentage of NPAs or otherwise, or that the percentage of NPAs that BFL will be able to recover will be similar to its past experience of recoveries of NPAs. BFL’s operations and performance would be adversely affected if there is any further deterioration in its NPA portfolio in the future.

40. BFL’s customer base significantly comprises of individuals and/or small and medium enterprise segment borrowers, who generally are more likely to be affected by declining economic conditions than

larger corporate borrowers. Individuals belonging to the salaried class and small and medium enterprise segment borrowers generally are less financially resilient than larger corporate borrowers, and, as a result, they can be more adversely affected by declining economic conditions. A significant majority of BFL’s customer base belongs to the small and medium enterprises sector. Furthermore, unlike several developed economies, a nationwide credit bureau has only recently become operational in India, so there is less financial information available about small and medium enterprises. It is therefore difficult to carry out a precise credit risk analysis on

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such customers. Although BFL believes that its risk management controls are sufficient, it cannot be certain that they will continue to be sufficient or that additional risk management policies for individual and/or small and medium enterprise borrowers will not be required. Failure to maintain sufficient credit assessment policies, particularly for small and medium enterprise borrowers, could adversely affect BFL’s credit portfolio, which could have a material and adverse effect on its results of operations and/or financial condition.

41. BFL requires substantial capital for its business operations. Any inability to acquire capital on preferred terms, whether in a timely manner, or at all, may have an adverse impact on the operations and/or

profitability of BFL. BFL’s liquidity and profitability depends largely on the timely access to, and the costs and terms associated with raising funds. BFL’s funding requirements historically have been met from various sources, including shareholder funding, secured and unsecured loans, (such as term loans, cash credit facilities from banks and financial institutions, non-convertible debentures, unsecured bonds, commercial paper, fixed deposits and inter-corporate deposits). BFL’s business thus depends and will continue to depend on its ability to