Dear Shareholder,
 
 This is the fifth year of your Company''s operations; its fifth annual
 report; and my fifth letter to you.
 
 FY2012 has been a very difficult year for the Indian economy. After
 clocking 8.6% GDP growth in FY2011, the nation seems to have slumped.
 Growth has fallen steadily in the first three quarters to 6.1% in
 October-December 2011. In all likelihood, we will achieve a growth rate
 of 6.5% to 7.0% in FY2012 - a far cry from 8.6% of the previous year,
 and further removed from the 9% plus growth that we witnessed over
 three consecutive years in FY2006, FY2007 and FY2008.
 
 It is not only the slowdown in growth, but also the sclerotic pace at
 which decisions are being taken in New Delhi and in some state
 capitals, if these are being taken at all. After the 2G imbroglio, it
 would seem as if no major decision is being taken - because the
 political and personal risks of attracting publicised censure from the
 judiciary, the Comptroller and Auditor General''s office, the Central
 Bureau of Investigation and the Central Vigilance Commission far
 outweigh those of inaction.
 
 Add to this political uncertainties in the centre and in the states;
 high interest rates that have been only partially addressed by a 50
 basis point cut in recent times; declining inflows of foreign direct
 and institutional investments; a burgeoning fiscal deficit, that is
 perhaps set to rise further; a widening current account deficit and a
 weakening rupee; worsening investment climate; and the fears of rising
 inflation. All these make for very difficult times.
 
 Indeed, in my previous letter to you, when I wrote, FY2012 may be a
 difficult year for the economy - one that could be beset with high
 inflation and rising interest rates, little did I realise that things
 could be as bad as they currently are.
 
 In such an environment, the good news that exist relate to your
 Company. Bajaj Finserv has done reasonably well. Let me touch upon its
 three major businesses: lending, life insurance and general insurance.
 
 Bajaj Finance Limited (BFL)
 
 As in the previous year, BFL has performed very well. I am proud of how
 this company has done despite overall economic adversity. Here are some
 facts for FY2012:
 
 - Total income was up 54% to Rs. 2,172 crore
 
 - Profit before tax was up 63% to Rs. 602 crore
 
 - Profit after tax was up 64% to Rs. 406 crore
 
 - Deployment of funds was up 67% to Rs. 15,797 crore
 
 - Assets under management was up 73% to Rs. 13,107 crore
 
 - Receivables under financing was up 69% to Rs. 12,283 crore
 
 - Loan losses and provisions were down 25% to Rs. 154 crore
 
 - Capital adequacy as on 31 March 2012 stood at 17.5% - well above the
 RBI norms.
 
 I expect BFL to do even better in the years ahead.
 
 Bajaj Allianz Life Insurance Company Limited (BALIC)
 
 The negative effects of the regulations introduced by the Insurance
 Regulatory and Development Authority (IRDA) in September 2010 seem to
 have played out. The life insurance sector finally showed a positive
 growth rate of 2.7% in second half of FY2012, compared to (-)21.4%
 growth in the first half of the fiscal year, and (-)9.7 % in the second
 half of FY2011.
 
 Even so, BALIC''s gross premium written for FY2012 was 22% lower at Rs.
 7,484 crore.  Renewal premium reduced by 22% to Rs. 4,766 crore. And new
 business premium was 22% lower at Rs. 2,718 crore. The good news, if it
 is to be called such, is that the rate of de-growth is shrinking with
 each successive quarter, and that the new business premium for Q4 of
 FY2012 was more or less the same as a year ago.
 
 Despite these difficulties, BALIC posted a shareholders'' profit ofRs.
 1,311 crore in FY2012.  Of this, your Company''s share stood at Rs. 970
 crore. The figures for FY2011 were Rs. 1,057 crore and Rs. 782 crore,
 respectively. Accumulated profits as on 31 March 2012 were Rs. 2,350
 crore, versus Rs. 1,039 crore as on 31 March 2011; and shareholders'' net
 worth was Rs. 3,561 crore, compared to Rs. 2,249 crore a year earlier.
 Moreover, BALIC issued 1.05 million new policies in FY2012 and, on this
 score, ranked second among the private life insurers.
 
 Bajaj Allianz General Insurance Company Limited (BAGIC)
 
 BAGIC is the second largest general insurance company in India in the
 private sector.  The industry has been adversely affected since FY2011
 due to the increasing provisioning required for motor pool losses. I am
 happy to note that even after absorbing this enhanced provisioning,
 BAGIC has maintained its solvency ratio at 156% for the year ended 31
 March 2012 - which is not only above the temporarily relaxed limit of
 130% but also above the normal regulatory requirement of 150%.
 
 In terms of gross direct premium written in India, the general
 insurance industry posted a growth of 23.3% for FY2012. BAGIC grew at
 14.9% to record a premium ofRs. 3,338 crore, and accounted for a market
 share of 6.3%. The company''s net earned premium for FY2012 (excluding
 the motor third party pool) grew by 13.7% to Rs. 2,196 crore. During the
 year, BAGIC sold 5.9 million policies, 7.8% less than the previous
 year.
 
 Notwithstanding headwinds, BAGIC recorded an underwriting profit ofRs. 86
 crore in FY2012, before considering the share of losses from the motor
 third party pool; in the previous year, the figure was Rs. 27 crore.
 After netting out the share of losses from the motor third party pool,
 the underwriting loss was Rs. 178 crore in FY2012 as compared to a loss
 of Rs. 219 crore in FY2011.
 
 Profit before tax after motor pool losses for FY2012 was Rs. 194 crore,
 compared to Rs. 62 crore a year earlier. Profit after tax was Rs. 124
 crore, versus Rs. 43 crore in FY2011.
 
 As outlined earlier in this letter, I am deeply concerned about how
 FY2013 will play out for the nation as well as your Company. Almost
 everyone in the know believes that the portents are grim. The headwinds
 can get even stronger. Your Company will have to do better to remain
 where it is today - and much better to move ahead.
 
 These are challenging times that will differentiate long-term winners
 from others.  I am convinced that Bajaj Finserv has winners, be they in
 BFL, BAGIC, BALIC or elsewhere.  Therefore, I urge upon every employee
 of Bajaj Finserv and its subsidiaries to work even harder in FY2013,
 and prove that we have what it takes to overcome difficulties, however
 arduous these may be.
 
 We shall do well. Because we believe in our destiny. And that of our
 country.
 
 With warm regards,
 
 
 Rahul Bajaj
 Chairman