1.  We have audited the attached Balance Sheet of PNB GILTS LTD. as at
 March 31, 2011 and also the Profit and Loss account and the Cash Flow
 Statement for the year ended on that date, annexed thereto. These
 financial statements are the responsibility of the Company’s
 management. Our responsibility is to express an opinion on these
 financial statements based on our audit.
 
 2.  We conducted our audit in accordance with auditing standards
 generally accepted in India. Those Standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free of material misstatement. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and disclosures in the financial statements. An audit also includes
 assessing the accounting principles used and significant estimates made
 by management, as well as evaluating the overall financial statement
 presentation. We believe that our audit provides a reasonable basis for
 our opinion.
 
 3.  As required by the Companies (Auditor’s Report) Order, 2003, as
 amended by the Companies (Auditors Report) (Amendment) Order, 2004
 (together ‘the order’) issued by the Central Government of India in
 terms of sub-section (4A) of section 227 of the Companies Act, 1956 of
 India (the ‘Act’), we enclose in the Annexure a statement on the
 matters specified in paragraphs 4 and 5 of the said Order.
 
 4.  Further to our comments in the annexure referred to in paragraph 3
 above, we report that :
 
 i) We have obtained all the information and explanations which to the
 best of our knowledge and belief were necessary for the purposes of our
 audit.
 
 ii) In our opinion, proper books of account as required by law have
 been kept by the company so far as it appears from our examination of
 those books and proper returns adequate for the purpose of our audit
 have been received from liaison offices of the company.
 
 iii) The Balance Sheet, Profit & Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account.
 
 iv) In our opinion, the Balance Sheet, Profit & Loss Account and Cash
 Flow Statement dealt with by this report comply with the Accounting
 Standards referred in sub-section (3C) of Section 211 of the Companies
 Act, 1956;
 
 v) On the basis of written representation received from the Directors
 as on March 31, 2011 and taken on record by the Board of Directors in
 meeting held on April 30, 2011 we report that none of the Director is
 disqualified as on March 31, 2011 from being appointed as director in
 terms of clause (g) of sub-section (1) of section 274 of the Companies
 Act, 1956.
 
 5.  In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts, read in conjunction
 with the significant accounting policies (Schedule – 18A) and notes on
 accounts (Schedule – 18B), give the information required by the
 Companies Act, 1956, in the manner so required and give a true and fair
 view in conformity with the accounting principles generally accepted in
 India;
 
 a) In the case of Balance Sheet, of the State of affairs of the Company
 as at March 31, 2011.
 
 b) In the case of the Profit & Loss Account, of the Profit of the
 Company for the year ended on that date.
 
 c) In the case of Cash Flow Statement, of the cash flow for the year
 ended on that date.
 
 
 Annexure referred to in Paragraph 3 of our report of even date to the
 members of PNB Gilts Limited, New Delhi on the accounts of the company
 for the year ended March 31, 2011.
 
 Based upon the information and explanations furnished to us and the
 books and records examined by us in the normal course of our audit, we
 report that to the best of our knowledge and belief:-
 
 (i) (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets.
 
 (b) The Company has conducted physical verification of its fixed during
 the year. In our opinion, this periodicity of physical verification is
 reasonable having regard to the size of the company and the nature of
 its assets.  No material discrepancies were noticed on such
 verification.
 
 (c) Fixed assets disposed off during the year were not substantial, and
 therefore, do not affect the going concern assumption.
 
 (ii) (a) The company’s inventory comprising of Treasury Bills & Dated
 Govt. Securities are held in the form of Subsidiary General Ledger
 (SGL) account maintained with the Reserve Bank of India and the said
 stock is verified with the confirmation certificate received from
 Reserve Bank of India. The stock of other securities are held by the
 company in de-materialised form with NSDL/SHCIL and the same is
 verified with the confirmation certificates received from them at the
 year end. In our opinion, the frequency of such verification is
 reasonable.
 
 (b) The procedures of physical verification of inventories followed by
 the management are reasonable and adequate in relation to the size of
 the Company and the nature of its business.
 
 (c) The Company is maintaining proper records of inventory. No
 discrepancy is noticed on physical verification of inventory as
 compared to book records.
 
 (iii) In accordance with the legal opinion obtained by the company the
 Directors of the Company who are nominees of Punjab National Bank are
 not to be regarded as concerned or interested. Hence the transactions
 with Punjab National Bank are not required to be listed in the register
 to be maintained under section 301 of the Companies Act,1956.The
 company has not granted any loans secured or unsecured to companies,
 firms or other parties covered in the register maintained u/s 301 of
 the Act. The company has taken unsecured loans (Call money) from
 companies, firms or other parties covered in the register maintained
 u/s 301 of the Act. The number of parties involved is one and total
 amount involved in the transactions is Rs.5070 crores with closing
 balance of Rs. NIL. The rate of interest and other terms and conditions
 of loans taken are not prima prejudicial to the interest of the company
 and the company is regular in payment of the principal amount and
 interest.
 
 (iv) In our opinion and according to the information and explanations
 given to us, there is an adequate internal control system commensurate
 with the size of the Company and the nature of its business for the
 purchase of inventories and fixed assets and for the sale of goods and
 services. We have not observed any continuing failure to correct major
 weakness in internal control system during the course of the audit.
 
 (v) In our opinion, and according to the information and explanations
 given to us, the transactions which need to be entered into the
 register maintained under section 301 of the Companies Act, 1956 have
 been so entered and these transactions have been made at prices which
 are reasonable having regard to the prevailing market prices at the
 relevant time as confirmed to us by the management.
 
 (vi) To the best of our knowledge the Company has not accepted any
 deposits from the public within the meaning of Section 58A and 58AA of
 the Act and rules framed there under.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with its size and nature of its business.
 
 (viii) To the best of our knowledge and according to the
 information/explanations given to us, maintenance of the cost records
 has not been prescribed by the Central Government under section
 209(1)(d) of the Companies Act, 1956.
 
 (ix) To the best of our knowledge and according to information /
 explanations given to us the Company is regular in depositing
 undisputed statutory dues including Income Tax, Wealth Tax, Sales Tax,
 Service Tax, Custom Duty, Excise Duty, Cess and any other statutory
 dues with the appropriate authorities. There were no arrears of
 outstanding undisputed statutory dues as at the last day of the
 financial year for a period of more than six months from the date they
 become payable.
 
 (x) The Company does not have any accumulated losses at the end of the
 financial year and has not incurred cash losses in the current
 financial year and in the immediately preceding financial year.
 
 (xi) In our opinion & according to the information and explanations
 given to us, the company has not defaulted in repayment of dues to the
 financial institution or bank or debenture holders as applicable.
 
 (xii) The Company has not granted any loans and advances on the basis
 of security by way of pledge of shares, debentures and other
 securities.
 
 (xiii) In our opinion and according to the information and explanations
 given to us, the provisions of special statute applicable to a chit
 fund or a nidhi/ mutual benefit fund/ societies are not applicable to
 the company.
 
 (xiv) According to the information and explanations given to us, the
 company is dealing or trading in shares, securities, debentures and
 other investments and proper records have been maintained for the same.
 All the shares, securities, debentures and other investments are held
 in the name of the company.
 
 (xv) According to the information and explanations given to us, the
 Company has not given any guarantee for loans taken by others from
 banks or financial institutions.
 
 (xvi) The Company has not raised any term loan during the year under
 audit.
 
 (xvii) To the best of knowledge and information and explanation given
 to us, funds raised on short term basis have not been used for long
 term investment.
 
 (xviii) The Company has not made any preferential allotment of shares
 to companies/firms/parties covered in the register maintained under
 Section 301 of the Companies Act, 1956.
 
 (xix) According to information and explanations given to us, the
 Company has not issued any debenture during the year.
 
 (xx) According to information and explanations given to us the Company
 has not raised any money by public issues during the year.
 
 (xxi) According to the information and explanations given to us, we
 have neither come across any instance of fraud on or by the company
 noticed or reported during the year nor have we been informed of such
 case by the management during the course of our audit.
 
 
                                                   For S. Mohan & Co.  
                                                Chartered Accountants
 
                                                       (R. K. Mittal)
 
                                                              Partner 
                                                Membership No. 088767
 
 Date : April 30, 2011 
 Place: New Delhi