Macroeconomic Perspective:
 
 Global Economy:
 
 The global economy continues to recover backed by ongoing policy
 support and improving financial market conditions.  The recovery
 process is led by Emerging Market Economies (EMEs), especially those in
 Asia, as growth remains weak in advanced economies. The global economy
 continues to face several challenges such as high levels of
 unemployment, which are close to 10 percent in the US and the Euro
 area.  Despite signs of renewed activity in manufacturing and initial
 improvement in retail sales, the prospects of economic recovery in
 Europe are clouded by the acute fiscal strains in some countries. Core
 measures of inflation in major advanced economies are still moderating
 as the output gap persists and unemployment remains high.
 
 Domestic Economy:
 
 The Reserve Bank of India had projected the real GDP growth for 2009-10
 at 7.5 percent. The advanced estimates released by the Central
 Statistical Organisation (CSO) in early February, 2010 placed the real
 GDP growth during 2009-10 at 7.2 percent.  The final real GDP growth
 for 2009-10 may settle between 7.2 and 7.5 percent.
 
 The uptrend in industrial activity continues. The index of industrial
 production (IIP) recorded a growth of 17.6 percent in December
 2009,16.7 percent in January 2010 and 15.1 percent in February 2010.
 The recovery has also become more broad- based with 14 out of 17
 industry groups recording accelerated growth during April 2009 -
 February 2010. The sharp pick- up in the growth of the capital goods
 sector, in double digits since September 2009, points to the revival of
 investment activity. After a continuous decline for eleven months,
 imports expanded by 2.6 percent in November 2009, 32.4 percent in
 December 2009, 35.5 percent in January 2010 and 66.4 percent in
 February 2010. The acceleration in non-oil imports since November 2009
 further evidences recovery in domestic demand. After contracting for
 twelve straight months, exports have turned around since October 2009
 reflecting revival of external demand.
 
 Various lead indicators of service sector activity also suggest
 increased economic activity. On the whole, the economic recovery, which
 began around the second quarter of 2009-10, has since shown sustained
 improvement.
 
 (source: RBIs monetary policy statement for the year 2010-11)
 
 Indian Housing Finance scenario:
 
 The decrease in property prices and uncertainty over growth in income
 levels, on the back of economic slowdown in the second half of the
 previous year led to some slackness in housing finance disbursements in
 the year 2008-09. However, with the gradual recovery in economic
 conditions, the demand for housing finance improved in 2009-10.
 Further, reduction in the interest rates during the second half of
 2009-10 also pepped up demand for housing finance.
 
 Over the last few years, the share of housing finance companies (HFC)
 has been increasing in the housing finance segment, mainly due to their
 cautious approach in credit underwriting, perception of better customer
 service, and increasing focus on urban centres which have higher
 average ticket size. The HFCs are expected to further raise their share
 in total disbursements, despite the introduction of teaser loan rates
 by banks. HFCs too have reduced interest rates to meet competitive
 pressures from banks. The launch of lower interest rate schemes on home
 loans by public sector banks has led other private banks and HFCs to
 follow suit. Hence, yields are estimated to have fallen by around 50
 basis points in 2009-10. At the same time, cost of funds has also
 reduced because of abundant liquidity in the system. As a result, gross
 spreads and net margins across player groups are expected to fall by 15
 - 20 basis points in the current financial year.
 
 CRISIL Research has observed that the asset quality of banks in the
 housing finance segment has been deteriorating significantly in the
 past 2-3 years, as against HFCs, who have been able to maintain their
 asset quality. During 2003-04 to 2007-08, the banking sector,
 especially private sector banks, had aggressively increased home loan
 lending by adopting higher loan to value ratio and instalment to income
 ratio thereby allowing customers to borrow more than their repayment
 capacity based on their income level, which resulted in higher NPA in
 the said segment.
 
 Due to the recent downturn, these weak loans began to show up in terms
 of poor asset quality as the borrowers were not able to pay their
 monthly instalments. In addition to the dilution of underwriting
 standards, seasoning of the portfolio after a period of rapid growth
 had played an important role in increasing the level of banks NPAs.
 Hence, gross NPAs of banks in the housing loan segment increased
 significantly during 2007-08 and 2008-09.
 
 Banks have already started tightening their credit standards, and their
 NPA levels are expected to witness moderation as the proportion of
 fresh loans generated with tighter underwriting standards gradually
 increases. On the other hand, HFCs have been cautious in their credit
 approach by adopting lower loan to value ratio and instalment to income
 ratio, resulting in considerable lower NPA levels.
 
 LIC Housings stride in progress:
 
 Performance:
 
 Interest income from housing loans increased 19.47 percent from
 Rs.2,747.65 crore in 2008-09 to Rs.3,282.66 crore in 2009-10.
 
 The net interest income grew by 21.33 percent from Rs.731.04 crore in
 2008-09 to Rs.886.94 crore in 2009-10.
 
 Profit after tax surged 24.56 percent from Rs.531.62 crore in 2008-09
 to Rs.662.18 crore in 2009-10.
 
 Operations:
 
 Funds mobilized grew 51.98 percent from Rs.11,188.33 crore in 2008-09
 to Rs. 17,004.35 crore in 2009-10.
 
 Sanctions (Ind.+Proj.) increased 65.55 percent from Rs.10,898.47 crore
 in 2008-09 to Rs. 18,043.17 crore in 2009-10.
 
 Disbursements (Ind. + Proj.) grew 69.51 percent from Rs.8,762.01 crore
 in 2008-09 to Rs. 14,852.92 crore in 2009-10.
 
 Loan portfolio grew 37.58 percent from Rs.27,679.28 crore in 2008-09 to
 Rs.38,081.38 crore in 2009-10.
 
 Margins:
 
 Net interest margin declined by 25 basis points from 2.95 percent in
 2008-09 to 2.70 percent in 2009-10.
 
 Return on equity reduced by 425 basis points from 23.80 percent in
 2008-09 to 19.55 percent in 2009-10 on account of 65.95 percent growth
 in equity holders fund due to increase in capital and retained profit
 for the year 2009-10.
 
 Net profit margin improved by 77 basis points from 18.31 percent in
 2008-09 to 19.08 percent in 2009-10.
 
 Asset Quality:
 
 Gross NPA declined by 38 basis points from 1.07 percent in 2008-09 to
 0.69 percent in 2009-10.
 
 Net NPA levels declined by 9 basis points from 0.21 percent in 2008-09
 to 0.12 percent in 2009-10.
 
 Shareholder Value:
 
 Earning per share grew 17.36 percent from Rs.62.59 in 2008- 09 to
 Rs.73.46 in 2009-10.
 
 Book value strengthened from Rs.263.04 in 2008-09 to Rs.356.85 in
 2009-10.
 
 It is worth mentioning here that your company through untiring efforts
 and proactive action has not only ensured consolidation of the gains
 achieved in the past years, but also ensured further growth and
 increased profitability. The company would continue its efforts to
 reduce NPAs further. Your Company has surpassed all the expectations
 and managed to beat the industry growth rate. It is on trails for
 achieving still greater heights. It is commendable that even in
 difficult, competitive environment, all the employees have teamed up,
 performed well extraordinarily and lived upto their commitment for
 growth of the company.
 
 LIC Housing Finance Limited has been playing a significant part in the
 economic and social life of the country, with its impeccable brand
 image and transparent policies and practices. The Company would like to
 remain focused on all areas that are likely to impact, favourably, the
 customers, the stakeholders, the employees and above all the society.
 The Companys vision, values and philosophy has brought us together
 this far making this journey extremely rewarding for each one of us.
 Our progress lies in our capabilities and commitment to stay on the
 course of a challenging strategic path. In this unfolding era of new
 opportunities, I look forward to your active support and good wishes to
 make the coming year, a year of still greater achievements and success.
 
 Thank you,
 
 T. S. Vijayan
 
 Chairman
 28th April, 2010