Voting Advisory

July 2014 Indiabulls Housing Finance Limited 1

30 July 2014 Indiabulls Housing Finance LimitedAnnual General Meeting (AGM)

Company Profile BSE: 535789 | NSE: IBULHSGFIN Industry: Housing Finance Index: S&P BSE 200/ CNX 200 Face Value: Rs. 2.0 Fiscal Year End: March

Meeting Date: 11 August 2014, 10:00 AM

Proxy Deadline: 9 August 2014, 10:00 AM

E-voting: https://evoting.karvy.com

E-Voting Dates: 4 August 2014 (10:00 AM) to 6 August 2014 (5:00 PM)

Notice Date: 6 July 2014

Meeting Venue: Centaur Hotel, IGI Airport, Delhi-Gurgaon Road, New Delhi-110037

Agenda Items

# Type1 Description of resolution IiAS Recommendation

1 O Adoption of accounts See Analysis

IiAS believes that a comprehensive review of the financials of a company is critical exercise and requires first-hand information and proper due diligence. IiAS does not provide voting recommendations on resolutions for adoption of accounts, given the limited time between receipt of the annual report and the shareholder meeting, but provides analysis of critical ratios.

2 O To confirm interim dividends amounting to Rs 20 per share and declare final dividend of Rs 9 per share (face value: Rs.2)

FOR

FY 14 dividend is Rs 29 per share (Rs 20 per share for FY13). The dividend payout ratio has increased to 74.6% from 59.1% in FY13.

3 O To reappoint Gagan Banga as director, re-designated as Vice-Chairman and Managing Director

FOR

His reappointment meets all statutory requirements. 4 O To reappoint Ajit Kumar Mittal as Executive Director FOR His reappointment meets all statutory requirements.

5 O To reappoint Deloitte Haskins & Sells LLP as statutory auditors and authorise the board to fix their remuneration

AGAINST

Deloitte Haskins & Sells LLP is the statutory auditor for three other group companies, Indiabulls Securities, Indiabulls Power and Indiabulls Real Estate, since 2005, 2010 and 2013 respectively (as per available data). We believe the audit firm’s long association with the group may impede their ability to provide a balanced and independent opinion on the company’s accounts.

G M R S T V

6A O To appoint Dr. Kamlesh Chakrabarty as Independent Director FOR

Dr. Kamlesh Chakrabarty is the former Deputy Governor of Reserve Bank of India. His appointment meets all statutory requirements.

6B O To appoint Rajender Mohan Malla as Independent Director FOR

Rajender Mohan Malla is the former Chairman and Managing Director of IDBI Bank and is currently the Managing Director of PTC India Financial Services Ltd. His appointment meets all statutory requirements.

7 S Issuance of Non-Convertible Debentures and/or other hybrid instruments on private placement basis

FOR

The issuance of debt securities on private placement basis will be within the overall borrowing limit of the company.

8 S Payment of commission to Non-Executive Directors up to 0.1% of net profits FOR

IBHFL has neither paid sitting fees nor remuneration for FY13 and FY14. Based on reported net profit of FY14 of Rs 15.1 bn, the maximum commission may aggregate Rs 15.0 mn. The company has five non-executive directors on its board, therefore the commission per director is estimated at a maximum of Rs 3.0 mn. Shareholders should consider asking the company to cap the commission in absolute amount.

www.iias.in

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July 2014 Indiabulls Housing Finance Limited 2

# Type1 Description of resolution IiAS Recommendation

9A O Change in the board by removing Karan Singh Khera, Independent Director FOR

IBHFL has stated that this will enable the company to induct greater professionalism by appointing directors with professional knowledge and experience

9B O Change in the board by removing Aishwarya Katoch, Independent Director FOR

IBHFL has stated that this will enable the company to induct greater professionalism by appointing directors with professional knowledge and experience

9C O Change in the board by removing Joginder Singh Kataria, Independent Director FOR

IBHFL has stated that this will enable the company to induct greater professionalism by appointing directors with professional knowledge and experience

9D O Change in the board by removing Rajiv Rattan, Non-Executive Director FOR

IBHFL has stated that this will enable the company to induct greater professionalism by appointing directors with professional knowledge and experience

9E O Change in the board by removing Saurabh Kumar Mittal, Non-Executive Director FOR

IBHFL has stated that this will enable the company to induct greater professionalism by appointing directors with professional knowledge and experience

[1] O/S: Ordinary/Special

Note: Following the split within the promoter group, the board of directors across the IndiaBulls group companies is being restructured. Notwithstanding, in IBHFL, three independent directors are being removed from their office under Section 169 of the Companies Act 2013, rather than waiting for their term to expire. Interestingly, the company has stated that the board restructuring is being done to induct greater professionalism and experience – suggesting that the earlier independent directors did not possess these qualifications. If so, it raises questions on the basis of appointing these independent directors in the first place.

Voting Advisory

July 2014 Indiabulls Housing Finance Limited 3

Company Overview Indiabulls Housing Finance Ltd (‘IBHFL’ or ‘the company’) is an NBFC that provides home loans, loan against property and commercial vehicle loans. The company was incorporated in 2005 as a subsidiary of Indiabulls Financial Services Limited: in a 2013, reverse-merger, Indiabulls Financial Services Limited was merged with Indiabulls Housing Finance Ltd. with a swap ratio of 1:1. The company was listed effective 23 July 2013.

Promoters: Sameer Gehlaut

Market snapshot Mkt Price (Rs): 364.6 Mkt Cap (Rs bn): 121.1 52 week H-L (Rs): 406.9 – 166.0 Current P/E(x): 7.6 Current P/B (x): 2.1 Networth (Rs bn): 57.1

Previous advisory

India Bulls Housing Finance EGM - 26 May’14

Price Performance (period ended 22 July 2014)

Listing date: 23 July 2013 Source: BSE, NSE, IiAS Research

Financial performance (Consolidated) (Rs.bn) Year ending 31-March 2013 2014

Total income 47.1 59.6

EBDTA 16.1 19.9

EBDTA margin (%) 34.2 33.4

PAT 12.3 15.6

PAT margin (%) 26.1 26.2

Total advances 308.8 355.8

Capital Adequacy Ratio (CAR) (%)

18.5 19.1

Gross NPA/Gross Advances (%) 0.79 0.83

Net NPA/Net Advances (%) 0.33 0.36

Debt / Net-worth Ratio (x) 6.3 6.3

Earnings per share 39.3 48.0 Source: Company filings, IiAS Research, Moneycontrol

Trend in Shareholding Pattern (%) As on Promoter1 FII DII Others

30-Jun-14 41.8 39.8 3.5 14.9

31-Mar-14 41.8 38.3 3.4 16.5

31-Dec-13 41.5 38.3 3.4 16.8

31-Sep-13 41.1 39.2 3.5 16.3

25-Jul-13 40.9 40.5 3.4 15.2 1 Pledged Share: Nil Source: BSE

Top Public Shareholders (as on 30 June 2014)

No. Name of the Shareholder Shares

held (million) Holding

as % of total

1 Copthall Mauritius Investment Ltd 20.0 6.0

2 HSBC Global Investment Fund A/c HSBC Gif Mauritius Ltd 17.5 5.3

3 Morgan Stanley Asia (Singapore) Pte 15.5 4.6

4 HSBC Bank (Mauritius) Ltd A/c Cinnamon Capital Ltd 15.4 4.6

5 National Westminster Bank Plc A/c Depository Of M&G Global Emerging Markets Fund a sub Fund Of M&G Investment Funds

6.6 2.0

6 LNM India Internet Ventures Ltd 5.7 1.7

7 Jasol Investment and Trading Co. Pvt. Ltd. 3.8 1.1

8 Reliance Life Insurance Company Ltd 3.7 1.1

9 CLSA (Mauritius) Ltd 3.7 1.1

Total 91.8 27.5

Source: Company filings

31% 31%

29%

Since listing

S&P BSE 200

CNX 200

Indiabulls HousingFinance

Voting Advisory

July 2014 Indiabulls Housing Finance Limited 4

Category: Accounts

IiAS believes that a comprehensive review of the financials of a company is a critical exercise which often requires first-hand information and proper due diligence. IiAS does not provide voting recommendations on resolutions for adoption of accounts, given the limited time between receipt of the annual report and the shareholder meeting, but provides analysis of critical ratios. A snapshot of the key accounting parameters are presented below:

Standalone vs Consolidated (FY14) (Rs bn) Revenue by Segment

Inner ring FY13 Outer ring FY14

Risk Indicators

Capital Adequacy Ratio

For the year ended 31 Mar 2013 2014 Other income as % of total income

5.7 9.1

Interest paid /Outstanding borrowings (%)

8.3 9.2

Debt / Net worth ratio (x) 6.2 6.2

Major Related Party Transactions (RPT) (Rs.bn) As on 31Mar’13 31Mar’14 Details Assessment

Receivables 1.4 4.2 Loan given to subsidiaries 1.2% of loans and advances

Payables 0.1 - Assignment payable to subsidiary Negligible

Audit Integrity

Parameter Result

Name of Auditor Deloitte Haskins & Sells

Audit Network Deloitte Touche Tohmatsu

Tenure of auditor (yrs) 9

Tenure of audit partner (yrs) 9

57.6 15.1430.8

2.0 0.613.4

94%

95%

96%

97%

98%

99%

100%

Revenues Profits AssetsStandalone Subsidiaries

15.0% 15.1%

3.5% 4.1%

FY13 FY14

Tier II

Tier I

Resolution 1: Adoption of Accounts

99%

1%

99%

1%

Invesitng &Financing relatedactivities

Fee income

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July 2014 Indiabulls Housing Finance Limited 5

Category: Dividend

# Type Description of resolution IiAS

Recommendation

Indicators

See Legend

2 O To confirm interim dividends amounting to Rs 20 per share and declare final dividend of Rs 9 per share

FOR

IiAS Assessment Parameters for Dividend Payout

Assessment Parameters Comment Details

Is growth in dividend higher than growth in profits? Yes Refer Table 1

Does the company have a stated dividend policy? No

Does the company have room to pay a higher dividend? No

Discussion IBHFL proposes to pay final dividend of Rs 9.0 per share (Rs 6.50 per share for FY13), this in addition to three interim dividends aggregating to Rs 20 per share (Rs 13.50 per share for FY13). The total dividend is Rs 29.0 per share. (Rs 20.0 per share in FY13). The payout ratio is higher at 74.6% (59.1% for FY13)

Table 1: Key ratios (stand-alone)

Particulars FY13 FY14

Profit after tax (Rs bn) 12.3 15.1

Profit growth y-o-y (%) NA 23.0

Dividend per share (Rs) 20.0 29.0

Total dividend (including tax on dividend) (Rs bn) 7.3 11.3

Dividend growth y-o-y (%) NA 55.1

Payout Ratio (%) 59.1 74.6

Source: IiAS Research, Company filings

IiAS recommends voting FOR the resolution.

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July 2014 Indiabulls Housing Finance Limited 6

Category: Board Appointments

# Type1 Description of resolution IiAS

Recommendation Indicators See Legend

3 O To reappoint Gagan Banga as director, re-designated as Vice-Chairman and Managing Director

FOR

4 O To reappoint Ajit Kumar Mittal as Executive Director FOR

6A O To appoint Dr. Kamlesh Chakrabarty as Independent Director FOR 6B O To appoint Rajender Mohan Malla as Independent Director FOR

9A O Change in the board by removing Karan Singh Khera, Independent Director

FOR

9B O Change in the board by removing Aishwarya Katoch, Independent Director

FOR

9C O Change in the board by removing Joginder Singh Kataria, Independent Director

FOR

9D O Change in the board by removing Rajiv Rattan, Non-Executive Director

FOR

9E O Change in the board by removing Saurabh Kumar Mittal, Non-Executive Director

FOR

Sl. No

Name of director

Occupation Age Tenure

(yrs)

% of board meetings attended

Other directorships

Pay (Rs.mn)

IiAS Recommendation

Executive Directors

1 Sameer Gehlaut Chairman 40 1 38 3 29.6 -

2 Gagan Banga Vice Chairman & Managing Director

NA 9 100 5 60.0 FOR

3 Ajit Kumar Mittal

Whole Time Director

NA 1 100 4 18.0 FOR

4 Ashwini Kumar Whole Time Director

NA 2 100 1 28.1

Non-executive Independent Directors

5 Shamsher Singh Ahlawat

Fmr. Emp., SBI 65 1 75 7 Nil

6 Prem Prakash Mirdha

Entrepreneur 58 1 63 4 Nil

7 Ram Kumar Shoekand

Businessman 60 1 75 2 Nil

8 Dr. Kamlesh Chakrabarty

Fmr. Dy. Governor, RBI

62 - - 0 - FOR

9 Rajender Mohan Malla

MD, PTC India Fin. Srvc, Ltd.

61 - -

1 - FOR

Seeking reappointment Seeking appointment

[1] IiAS classifies them as non-independent due to their prolonged tenure on the board. The company has classified them as independent.

Table 2: Committee Composition1

Name of Committee

No of directors

Chairman % of

independence Compliance Remarks

Audit 4 Independent 75% Compliant

Remuneration 3 Independent 100% Compliant

Investor Grievance 5 Independent 80% Compliant

[1] As per IiAS classification

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July 2014 Indiabulls Housing Finance Limited 7

IiAS Assessment Parameters for Board Appointments

Assessment Parameter Comment Regulatory Requirement

Is the chairman of the board an independent director? No

Is there a separation in the roles between the Chairman and CEO? Yes Recommended

Proportion of independent directors on the board 56% 50%

Proportion of non-executive directors on the board 56%

Is there at least one woman director on the board? No Yes

Does the company have a policy on the retirement age of directors? No

Do all the board committees have at least one independent director? Yes Yes

Does the company have a whistleblower policy? Yes Yes

[1] As per IiAS classification

At the forthcoming AGM, Karan Singh Khera, Aishwarya Katoch & Joginder Singh Kataria, independent directors and Rajiv Rattan & Saurabh Kumar Mittal, non-executive non-independent directors shall vacate their office. This is to enable the company to induct great professionalism by appointing directors with professional knowledge and experience.

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July 2014 Indiabulls Housing Finance Limited 8

Category: Auditors

# Type Description of resolution IiAS Recommendation

Indicators

See Legend

4 O Reappointment of Deloitte Haskins & Sells LLP as statutory auditors and authorize the board to fix their remuneration

AGAINST G M R S T V

IiAS Assessment Parameters for Auditor Appointment

Parameter Comment Details

Is the tenure of the auditor firm more than 10 consecutive years?[1] No

Has the audit partner been rotated in the last five years? Yes

Is the increase in auditor remuneration commensurate with increase in size? Yes

[1] Audit network tenure

Discussion Deloitte Haskins & Sells LLP have been the statutory auditor of the company since its inception in FY06. Shareholders should note that Deloitte Haskins & Sells LLP has also been the auditor of three group companies, Indiabulls Securities, Indiabulls Power and Indiabulls Real Estate, since 2005, 2010 and 2013 respectively (as per available data). We believe the audit firm’s close proximity to the group may limit their ability to provide a balanced and independent opinion on the company’s accounts.

Accordingly, IiAS recommends voting AGAINST their reappointment as the statutory auditor.

Box 1: Regulatory snapshot: Auditor appointment under section 139 of the Companies Act 2013

Approval Process: Section 139 of the Companies Act 2013 states that every company shall appoint an auditor for an initial term of five years. The appointment must be ratified by shareholders at every annual general meeting of the company by passing an ordinary resolution.

Auditor Rotation: The Act requires mandatory rotation of individual auditors in every 5 years and of the audit firm in every 10 years (after two terms of 5 years each) in listed companies. A cooling-off period of five years after the stipulated threshold is required to be considered eligible for re-appointment.

Eligibility: For the purpose of rotation, the incoming auditor or audit firm shall not be eligible if they are part of the same audit network (which includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control) as the outgoing auditor or audit firm. Further, if a partner, who is in charge of an audit firm and certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.

Applicability: In the rules notified recently by the Ministry of Corporate Affairs (MCA), it has been clarified that section 139 will be applicable on a retrospective basis - which means the existing term of the current auditors will be taken into account for computing the overall tenure.

Commencement: Companies will have to comply with the requirements within three years from the date of commencement of the Act.

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July 2014 Indiabulls Housing Finance Limited 9

Category: Private Placement of debt securities

# Type Description of resolution IiAS Recommendation

See Legend Indicators See Legend

7 S Issuance of Non-Convertible Debentures and/or other hybrid instruments on private placement basis

FOR

Discussion In the EGM held on 26 May 2014, shareholders had approved issuance of Non-Convertible Debentures on private placement basis, this approval is valid for one year from the EGM date. To get this authorization extended up to a period of one year from the AGM date, the company has again sought shareholders’ approval to issue NCDs and or any other hybrid instruments on private placement basis. Box 2: Regulation snapshot: Section 42 of Companies Act, 2013 “A company shall not make a private placement of its securities unless -

(a) the proposed offer of securities or invitation to subscribe securities has been previously approved by the shareholders of the company, by a Special Resolution, for each of the Offers or Invitations.

Provided further that in case of offer or invitation for non- convertible debentures, it shall be sufficient if the company passes a previous special resolution only once in a year for all the offers or invitation for such debentures during the year.”

This is an enabling resolution. The issuance of securities will be within the overall borrowing limit. IiAS recommends voting FOR the resolution

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July 2014 Indiabulls Housing Finance Limited 10

Category: Commission for Non-Executive Directors

# Type Description of resolution IiAS Recommendation Indicators See Legend

8 S Payment of commission to Non-Executive Directors up to 0.1% of net profits

FOR

Discussion

Pursuant to Section 197 (1) and 198 of the Companies Act, 2013, IBHFL seeks shareholder’s approval to pay commission up-to 0.1% of the net profit of the company, (computed in the manner as referred in Section 198 of the Companies, 2013) to the non-executive directors for each. The commission will be in addition to the sitting fees paid for attending board and committee meetings. The company has not paid sitting fees or commission in FY13 and FY14. Box 3: Regulation Snapshot

The provisions contained in section 309 (4) of the Companies Act 1956 stipulate that a non-executive director may be paid remuneration by way of commission if the company by special resolution authorizes such payment; provided that the remuneration paid to such directors shall not exceed 1% of the net profits where the company has a managing director or whole- time director or 3% where there is no MD or whole-time director. A similar provision is available in the Companies Act, 2013, under section 197 (1) (ii).

Table 3: Details of commission paid to the non-executive directors (Rs. mn) For the year ended 31 March 2013 2014

Commission (@ 0.1% of net profit) 12.3 15.1

Net profit as reported[1] 12279.1 15100.0 1 Commission is paid as per of net profit calculated as referred in Section 198 of the Companies, 2013. In-absence of this, reported net profit has been stated.

IBHFL’s board includes five non-executive directors, therefore the maximum commission per director is Rs 3.0 mn, based FY14 reported profits. IiAS would advise shareholders to ask for a remuneration cap at an absolute amount. IiAS recommends voting FOR the resolution.

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July 2014 Indiabulls Housing Finance Limited 11

Legend

IiAS publishes voting recommendations on shareholder resolutions. These recommendations are non-binding in nature. Investors may have their own voting parameters which may, on aspects, differ from those of IiAS. On such occasions, investors should use these recommendations as a guiding tool. The data and regulations reviewed while arriving at a recommendation are disclosed to the investors. This gives the investor clarity regarding the basis for our recommendations. Please note that voting recommendations do not constitute advice to buy, sell or hold securities.

Indicator Meaning Description Common Examples

Governance Issue

This symbol is used for resolutions which indicate poor corporate governance practices or non-compliance with the regulatory provisions. Consequently, they are usually accompanied with an AGAINST recommendation. IiAS may also include measures/best practices which the company can adopt to improve its governance record.

Managerial remuneration, Auditor appointments

Minority shareholder impact

This symbol is used for resolutions which negatively affect the minority shareholders of the company. IiAS usually recommends voting AGAINST such resolutions as they benefit the controlling or a class of shareholders at the expense of others.

Preferential warrants, Differential rights

Moderate - High Risk

This symbol is used for operating decisions taken by the company management and IiAS will usually recommend voting FOR such resolutions. However, they carry an element of risk which may subsequently have a negative impact on the financials. Investors are therefore advised to review the risk factors highlighted by IiAS in its analysis before voting.

Any resolution

Strategic

Indicates a strategic decision of the company, the long term impact of which cannot be accurately ascertained at the time of proposal. These may be accompanied with a FOR or AGAINST recommendation based on a preliminary review of data provided to investors. IiAS recommendations on such strategic decisions are dependent primarily on short-term indicators like market reaction, analyst opinions, valuation impact, etc. Investors may choose to support a resolution in expectation of higher returns.

Mergers, Amalgamations, Hive-offs, Entering new lines of business

Transparency Issue

Indicates lack of adequate information. Even though IiAS provides both FOR and AGAINST recommendations on such resolutions (based on available data), investors are advised to seek further clarifications from the company. Investors should take into account any additional information received from the company before voting.

Any resolution

Valuation

Refers to a valuation impact on the company’s financials. These resolutions are likely to impact the company’s margins and long term profitability. IiAS typically will recommend voting AGAINST such a resolution. Investors are advised to critically review the company’s proposal in such cases. However, they may choose to support a resolution in expectation of higher returns.

Increase in borrowings. Related party transactions, Excessive dilution

G

M

S

V

T

R

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July 2014 Indiabulls Housing Finance Limited 12

Disclaimer

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