LIC Housing Finance

The Directors have great pleasure in presenting the Nineteenth Annual
 Report of your Company together with the audited accounts for the year
 ended 31st March 2008.
 
 Financial results
 
 The profit and loss account shows a profit before tax of Rs.S32.37 cr
 after writing off bad loans of Rs. 11.61 cr and provision of Rs.27.8S
 cr towards contingencies and considering the amount recovered of
 Rs.15.17 cr out of earlier write off and taking into account all
 expenses, including depreciation. Considering the prior period items of
 Rs.0.07 cr. the profit before tax is Rs.S32.3() cr. After considering
 the provision for income tax (net of deferred tax) of Rs.145.12 cr, the
 profit after tax for the year is Rs.387.18 cr.
 
 Taking into account-the balance of Rs. 11.88 cr being brought forward
 from the previous year, the distributable profit is Rs.399.06 cr.
 
                                                (Rs. in crore)
 
                                   For the year ended For the year ended
                                     31st March 2008    31st March 2007
 Appropriations:
 
 Special reserve                          100.00             1,36.00
 General reserve                           85.00               55.00
 Interim dividend                            Nil               42.47
 Proposed dividend                         84.93               25.48
 Tax on dividend                           14.43               10.28
 Market fluctuation reserve                13.32                5.19
 Balance carried forward to next year     101.38               11.88
                                          599.00              286.30
 
 Dividend
 
 Considering the excellent performance during the year 2007-08, your
 Directors have recommended a dividend of Rs.10 per equity share (100
 percent), for the year ended 31st March 2008, as against Rs.8 per
 equity share (80 percent) for the previous year ended 31st March 2007.
 
 Performance Income and profit
 
 Profit before tax and after tax stood at Rs.532.30 cr and Rs.387.18 cr
 as against Rs.353.78 cr and Rs.279.15 cr, respectively, for the
 previous year. Profit before tax has increased by 50.46 percent and
 profit after tax by 38.70 percent as compared to previous year.
 
 The Company earned a total income of Rs.2,164.92 cr, registering an
 increase of 37.41 percent. The percentage of administrative expenses to
 the housing loans, which was 0.62 percent in the previous year, has
 decreased to 0.59 percent in 2007-08.
 
 Lending operations Individual loans
 
 The main thrust continues on individual loans. However, project loans
 were also given due weightage thereby resulting into a sizeable growth
 in project loans. During the year, the Company sanctioned 60,665
 individual loans for
 
 Rs.6,535.74 cr and disbursed 61,819 loans for Rs.5,902.52 cr during
 2007-08. This constitutes 75.84 percent of the total sanctions and
 83.47 percent of the total disbursements compared to the last years
 figures of 89-21 percent and 95.71 percent respectively.
 
 The cumulative sanctions and disbursements since the incorporation, in
 respect of individual loans are:
 
 Amount sanctioned : Rs.37,559.18 cr
 Amount disbursed  : Rs.35,642.85 cr
 
 Project loans
 
 Growth in profit has been attributed to the growing portfolio of
 project loans. The Company sanctioned/disbursed project loans to select
 builders/developers. The project loans sanctioned and disbursed by the
 Company during the year were Rs.2,082.14 cr and Rs.1,168.96 cr,
 respectively. These loans are generally for short duration and also
 give better yield as compared to individual loans.
 
 Approximately 9,40,000 customers have been serviced by the Company up
 to 31st March 2008 since its inception.
 
 Non-Performing Assets and provisions
 
 The amount of gross Non-Performing Assets (NPA) as on 31st March 2008
 is Rs.372.92 cr, which is equivalent to 1.70 percent of the housing
 loan portfolio. The net NPA is
 
 Rs.140.90 cr i.e. 0.64 percent of the housing loan portfolio.  The
 total cumulative provision towards housing loan as on 31st March 2008
 is Rs.232.02 cr. During the year, the Company has written off Rs.38.99
 cr of housing loan portfolio against which a provision of Rs.27.38 cr
 existed.
 
 Fund raising
 
 The Company raised funds aggregating to Rs.7,489.70 cr through term
 loans from commercial banks, Non-Convertible Debenture (NCD) and Public
 Deposit. The Companys NCD issue was rated AAA and Public Deposit was
 rated as FAAA/STABLE by CRISIL.
 
 Increase in authorised capital
 
 The Company has increased its capital base from Rs.100 cr to Rs.150 cr
 to augment resources for its growth as well as to maintain the Capital
 Adequacy Ratio as prescribed by the National Housing BankXNHB).
 However, during 2007-08, the Company has not issued any equity share.
 
 Auditors
 
 Statutory Auditors M/s. PC. Hansofia & Co., Chartered Accountants,
 retire at the conclusion of the forthcoming Annual General Meeting
 (AGM) and are eligible for reappointment. The Company received the
 requisite certificate from them to the effect that their reappointment,
 if made, would be within the limits of Section 224 (IB) of the
 Companies Act, 1956.
 
 The Directors recommend the reappointment of M/s. P.C.  Hansotia & Co.,
 Chartered Accountants, as auditors of the Company for the financial
 year 2008-09.
 
 Directors
 
 During the period, Shri S. K. Mitter, Shri G. M. Ramamurthy and Shri
 Thomas Mathew T. resigned from the Board of Directors of the Company.
 The Board places on record its appreciation for the valuable
 contributions made by them during their tenure as members of the Board.
 
 Shri Y.B. Desai and Shri Dhananjay Mungale, Directors, retire by
 rotation at the ensuing AGM and are eligible for reappointment.
 
 Shri D. K. Mehrotra and Shri R. R. Nair have been appointed by the
 Board of the Company as Managing Director and Director in whole time
 employment in terms of nomination received from Life Insurance
 Corporation of India, subject to approval of shareholders at the
 forthcoming AGM.
 
 The Directors recommend their reappointment / appointment.
 
 Corporate Governance
 
 A certificate from the Statutory Auditors of the Company regarding
 compliance of the conditions of Corporate Governance as stipulated
 under Clause 49 of the Listing Agreement is attached-to the Corporate
 Governance Report.
 
 Your Company has been complying with the principles of good Corporate
 Governance over the years. The Board of Directors support the broad
 principles of Corporate Governance. In addition to the basic governance
 issues, the Board lays strong emphasis on transparency, accountability
 and integrity.
 
 NHB guidelines
 
 The Company has been following prudential accounting practices in
 respect of income recognition since 1991-92, not accounting income in
 respect of housing loans on which interest is past due for more than
 six months.
 
 As per revised guidelines issued by the NHB, the time limit has beent
 reduced to 90 days for categorising a housing loan as non-performing.
 The Company has been following the same from the day it has become
 effective.
 
 Your Company has been complying with the guidelines in respect of
 income recognition, provisioning for Non- Performing Assets and
 maintaining capital adequacy issued by the NHB from time to time. The
 capital adequacy was 1334 percent (as against 12 percent prescribed by
 the NHB) as on 31st March 2008.
 
 Depository system
 
 The Company has signed an agreement with the Central Depository
 Services (India) Limited (CDSL) for transactions of its shares in
 dematerialised form, in addition to the National Securities Depository
 Limited (NSDL), to give a choice to shareholders in selecting
 depository participant. As on 31st March 2008, 16,275 members of the
 Company continue to hold shares in physical form. As per the Securities
 and Exchange Board of Indias (SEBI) instructions, the Companys shares
 have to be transacted in dematerialised form and therefore, members are
 requested to convert their holdings to dematerialised form.
 
 Public deposits
 
 During 2007-08, the Company started accepting deposits from the public.
 As on 31st March 2008, the outstanding amount on account of public
 deposits was Rs. 15,70,18,000 and no deposit was unpaid as on end of
 the financial year.  The interest due on the public deposits has been
 paid on time.
 
 Statutory information
 
 The Company does not own any manufacturing facility.  Hence the
 particulars relating to the conservation of energy and technology
 absorption stipulated in the Companies (Disclosure of Particulars in
 the Report of the Board of Directors) Rules, 1988, are not applicable.
 The particulars of foreign exchange outgo and foreign earnings during
 2007-08 are given at item No. 5 and No.6 in the Notes to the Accounts.
 There are no employees covered by Section 217 (2A) of the Companies
 Act, 1956, read with the Companies (Particulars of Employees) Rules,
 1975, as amended.
 
 Auditors observations
 
 No adverse remark or observation is given by the .itatuiorv auditors.
 
 During the year, the Company has changed the internal audit systems
 thereby the internal audit is being conducted inhouse instead of
 outside agency. Efforts arc being continued to further strengthen the
 internal audit system to make it commensurate with the size and the
 nature of the business.
 
 Systems and procedures are being upgraded to provide checks and alerts
 for avoiding fraud arising out of misrepresentation given by borrower/
 s while availing twin housing loans.
 
 Outlook for 2008-09
 
 The initiatives taken by the Company during the year are expected to
 improve its operational and financial performance. Major initiatives
 taken by the Company include
 
 * Raising funds through loans at attractive rate of interest and terms.
 
 * Continuing negotiation with lenders for reducing overall cost of
 funds.
 
 * Reviewing the existing lending rates in view of the change in
 interest rate scenario, thereby passing the burden of increased rate to
 the customer.
 
 * Strengthening its credit appraisal system to evaluate the lending
 rate applicable to individuals.
 
 * Change in Information Technology platform to ensure prompt and
 effective service to the clientele.
 
 * Initiating brand building measures to generate general awareness
 about the Company and also increase the overall market share.
 
 * Creating additional distribution channels to reach the new segment of
 customers.
 
 * Improving the existing schemes and introduction of customer-friendly
 products.
 
 Following the governments policy to provide shelter to a large number
 of people, the government offers a number of incentives to boost
 housing and housing finance activities.  Some of these are listed
 below:
 
 1.  The Finance Act, 2008, continued with the tax concessions in
 respect of interest paid on loan raised for buying/ construction of
 house property.
 
 2.  Rebate for repayment of housing loan under Section 80C of the
 Income-Tax Act, 1961, of Rs.1,00,000/- is also continued for the year
 2008-09.
 
 3.  Clearance under Section 230 (A) of the Income Tax Act, 1961, is no
 longer required.
 
 4.  The Securitization and Reconstruction of Financial Assets and
 Enforcement of Security Interest Act, 2002 (SARFAESI Act) was extended
 to select housing finance companies, including your Company. Under this
 Act, the housing finance company is entitled to demand from the
 defaulter whose loan has been classified as NPA, to clear the entire
 dues within 60 days, failing which the Company is empowered to takeover
 the property and recover its dues by disposing of the property by
 adhering to the prescribed rules.  This has enabled the Company to
 foreclose bad loans without the intervention of the court and thereby
 improve NPA position.
 
 5. The NHB has prescribed the risk weightage of 50 percent of
 individual housing loans for the purpose of capital adequacy.
 
 Apart from this, the steps taken by the NHB are expected to provide
 greater thrust to house construction activities and consequently to
 housing finance business.
 
 New product
 
 The Company had also introduced new scheme to cater to the demand of
 different kinds of customers namely the Reverse Mortgage for Senior
 Citizens.
 
 The management perspective about future of the Company
 
 In view of the huge shortage in urban housing units in the country, the
 Union government has been providing continued support to make the
 sector attractive, and giving it due recognition in the last three
 Union budgets. It is estimated that during the Eleventh Five-Year Plan
 (2007-12), there will be an outlay of Rs. 150,000 cr provided by the
 Union government exclusively for housing and, therefore, the management
 reasonably foresees good potential for growth in the business of the
 Company.
 
 Directors Responsibility Statement pursuant to Section 217 (2AA) of
 the Companies Act, 1956
 
 In accordance with the provisions of Section 217 (2AA) of the Companies
 Act, 1956, and based on the information provided by the management,
 your Directors state that:
 
 * In the preparation of the annual accounts, the applicable accounting
 standards have been followed.
 
 * Accounting policies were applied consistently. Reasonable and prudent
 judgment and estimates were made so as to give true and fair view of
 the state of affairs of the Company as at the end of 31st March 2008,
 and profit of the Company for the year ended on that date.
 
 * Proper and sufficient care has been taken for maintenance of
 accounting records in accordance with the provisions of the Companies
 Act, 1956, for safeguarding the assets of the Company and for
 preventing/detecting fraud and other irregularities.
 
 * The annual accounts are prepared on a going concern basis.
 
 Human resources
 
 The Company is run by qualified and trained employees who are
 responsive to the customers needs and the changing economic scenario.
 Employee relations remained cordial and the work atmosphere remained
 congenial during the year.
 
 The Company had organised various training programmes for upgrading.the
 skill and knowledge of its employees in different operational areas. It
 had been sponsoring its employees for training
 programmes/seminars/conference organised by reputed professional
 institutions.
 
 Subsidiary companies
 
 The financial statements along with the Reports of the Directors of the
 Companys wholly owned subsidiaries namely LICHFL Care Homes Limited,
 LICHFL Financial Services Limited, LICHFL Trustee Company Private
 Limited and LICHFL Asset Management Company Private Limited for the
 year ended 31st March 2008, are attached along with the statement
 pursuant to Section 212 of the Companies Act, 1956, with respect to the
 said subsidiaries. The brief review of the subsidiary companies are as
 under:
 
 1. LICHFL Care Homes Limited
 
 To address to the crying need of housing for the senior citizens of the
 country, the Company had promoted LICHFL Care Homes Limited, to
 establish and operate assisted living centres.  It launched its
 eco-friendly pilot project in Bangalore with cost-effective independent
 cottages and all other on-campus amenities, fully structured and self-
 contained to address every possible need of residents.  It has library,
 community centre, home theatre, meditation centre, doctors on call and
 ambulance to take the ailing to the nearest city medicare centre - all
 that would make the lives of senior citizens comfortable and
 satisfying.
 
 During the current year, the Company proposes to start construction of
 project at Bhubaneswar and finalise the purchase of land for few more
 projects.
 
 2. LICHFL Financial Services Limited
 
 LICHFL Financial Services Limited was incorporated on 31st October 2007
 for undertaking non fund based activities like marketing of housing
 loans, insurance products, credit cards, mutual funds, personal loans
 etc. Effective steps for starting the business of the Company are also
 being taken. However, till 31st March 2008, the Company has not
 commenced any activities.
 
 3. LICHFL Trustee Company Private Limited
 
 LICHFL Trustee Company Private Limited was incorporated on 5th March
 2008 for undertaking the business of trustees of venture capital trust,
 funds - in India and offshore fund.  The Company would very soon launch
 its operations - act as trustee of the fund raised through private
 placement, public offer etc.
 
 4.  LICHFL Asset Management Company Private Limited
 
 LICHFL Asset Management Company Private Limited was incorporated on
 14th February 2008 for undertaking the business of managing, advising,
 administering mutual funds, unit trust, investment trust in India as
 well as in abroad. The Company will launch its operations very soon.
 
 Acknowledgments
 
 The Directors place on record their appreciation for the advice,
 guidance and support given by the Life Insurance Corporation of India
 and the NHB and all the bankers of the , Company. The Directors also
 place on record their sincere thanks to the Companys clientele and
 members for their patronage. The Directors also record their
 appreciation for the dedicated services of the employees and their
 contribution to the growth of the Company.
 
                                        For and on behalf of the Board
 
 Mumbai                                          Chairman
 20th May 2008