LETTER OF OFFER December 1, 2006 For Equity Shareholders of the Company Only

BAJAJ AUTO FINANCE LIMITED

(Originally incorporated as Bajaj Auto Finance Private Limited on March 25, 1987. Bajaj Auto Finance Limited was originally incorporated as a private limited company. It became a deemed public limited company under section 43A of the Companies Act, 1956 with effect from October 20, 1987, and thereafter became a public limited company with effect from September 24, 1988.) Registered and Corporate Office: C/o. Bajaj Auto Limited, Mumbai-Pune Road, Akurdi, Pune 411 035. (For changes in our name see History of the Company and Other Corporate Matters on page 54 of this Letter of Offer.) Tel: +91 20 27472851; Fax: +91 20 27484486 E-mail: baflrights@bajajfinance.in; Website: www.bajajfinance.com Contact Person: Mr. Suhas Patwardhan, Company Secretary & Compliance Officer

For private circulation to the Equity Shareholders of the Company only LETTER OF OFFER
SIMULTANEOUS BUT UNLINKED ISSUE OF 12,596,076 EQUITY SHARES OF Rs. 10 EACH AT A PREMIUM OF RS. 315 PER EQUITY SHARE AGGREGATING RS. 4,093.72 MILLION TO THE EQUITY SHAREHOLDERS ON RIGHTS BASIS IN THE RATIO OF 6 EQUITY SHARES FOR EVERY 10 EQUITY SHARES HELD ON THE RECORD DATE i.e. NOVEMBER 20, 2006 AND 5,248,365 NON-CONVERTIBLE DEBENTURES (NCDs) OF RS. 500 EACH AGGREGATING RS. 2,624.18 MILLION WITH DETACHABLE WARRANTS IN THE RATIO OF 1 NCD WITH DETACHABLE WARRANT FOR EVERY 4 EQUITY SHARES HELD ON THE RECORD DATE (ISSUE) THE ISSUE PRICE FOR EQUITY SHARES IS 32.5 TIMES OF THE FACE VALUE OF THE EQUITY SHARE. TOTAL ISSUE OF EQUITY SHARES AND NCDs WITH DETACHABLE WARRANTS PRIOR TO CONVERSION IS RS. 6,717.90 MILLION AND AFTER ASSUMING FULL CONVERSION OF DETACHABLE WARRANTS INTO EQUITY SHARES DURING THE WARRANT CONVERSION PERIOD AT WARRANT EXERCISE PRICE WOULD AGGREGATE Rs. 9,342.09 MILLION

GENERAL RISKS
Investments in equity and equity related securities involve a degree of risk and Investors should not invest any funds in this Issue unless they can afford to take the risk of losing their investment. Investors are advised to read the Risk Factors carefully before taking an investment decision in this Issue. For taking an investment decision, Investors must rely on their own examination of the Issuer and the Issue including the risks involved. The securities have not been recommended or approved by the Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of this document. Investors are advised to refer to Risk Factors on page vii of this Letter of Offer before making an investment in this Issue.

ISSUERS ABSOLUTE RESPONSIBILITY

The Issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of Offer contains all information with regard to the Issuer and the Issue, which is material in the context of this Issue, that the information contained in this Letter of Offer is true and correct in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this Letter of Offer as a whole or any such information or the expression of any such opinions or intentions misleading in any material respect.

CREDIT RATING
The NCDs with detachable Warrants being offered through this Letter of Offer have been rated by: CRISIL as AA+/ Stable (pronounced Double A plus with stable outlook) (indicating high degree of safety with regard to timely payment of interest and principal on the instrument); and ICRA as LAA+ (pronounced L double A plus) (indicating high-credit-quality rating).

LISTING
The existing Equity Shares of the Company are listed on The Bombay Stock Exchange Limited (Designated Stock Exchange) (BSE) and The National Stock Exchange of India Limited (NSE). The Company has received in-principle approvals from BSE and NSE for listing the Equity Shares, NCDs and Warrants arising from this Issue vide letters dated August 24, 2006 and August 31, 2006 respectively. LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE

JM MORGAN STANLEY PRIVATE LIMITED 141, Maker Chambers III, Nariman Point, Mumbai 400 021. Contact Person: Ms. Purti Vijaywargiya Tel: + 91 22 66303030 Fax: +91 22 22047185 Email: baflrightsissue@jmmorganstanley.com

INTIME SPECTRUM REGISTRY LIMITED C-13, Pannalal Silk Mills Compound, LBS Marg, Bhandup (W), Mumbai 400 078. Contact Person: Mr. Vishwas Attavar Tel: + 91 22 25960320 (9 lines) Fax: + 91 22 25960329 Email:bajajaf-rights@intimespectrum.com

ISSUE PROGRAMME
ISSUE OPENS ON December 15, 2006 LAST DATE FOR REQUEST FOR SPLIT APPLICATION FORMS January 1 , 2007 ISSUE CLOSES ON January 15 , 2007

BAJAJ AUTO FINANCE LIMITED

TABLE OF CONTENTS
SECTION I : DEFINITIONS & ABBREVIATIONS ----------------------------------------------------------------------------------- III DEFINITIONS ------------------------------------------------------------------------------------------------------------------------------------ III COMPANY/ISSUE-RELATED TERMS ---------------------------------------------------------------------------------------------------- III INDUSTRY RELATED TERMS -------------------------------------------------------------------------------------------------------------- IV CONVENTIONAL/GENERAL TERMS ---------------------------------------------------------------------------------------------------- V ABBREVIATIONS ------------------------------------------------------------------------------------------------------------------------------ VI SECTION II : RISK FACTORS ------------------------------------------------------------------------------------------------------------ VII SECTION III : INTRODUCTION ----------------------------------------------------------------------------------------------------------- 1 SUMMARY ---------------------------------------------------------------------------------------------------------------------------------------- 1 THE ISSUE ----------------------------------------------------------------------------------------------------------------------------------------- 5 SUMMARY FINANCIAL AND OPERATIONAL INFORMATION ----------------------------------------------------------------- 6 GENERAL INFORMATION ------------------------------------------------------------------------------------------------------------------ 10 CAPITAL STRUCTURE ----------------------------------------------------------------------------------------------------------------------- 14 OBJECTS OF THE ISSUE --------------------------------------------------------------------------------------------------------------------- 20 BASIS FOR ISSUE PRICE --------------------------------------------------------------------------------------------------------------------- 23 STATEMENT OF TAX BENEFITS --------------------------------------------------------------------------------------------------------- 25 SECTION IV : ABOUT US ------------------------------------------------------------------------------------------------------------------- 30 OUR INDUSTRY -------------------------------------------------------------------------------------------------------------------------------- 30 OUR BUSINESS ---------------------------------------------------------------------------------------------------------------------------------- 38 REGULATIONS AND POLICIES ------------------------------------------------------------------------------------------------------------ 49 HISTORY OF OUR COMPANY AND OTHER CORPORATE MATTERS -------------------------------------------------------- 54 OUR MANAGEMENT ------------------------------------------------------------------------------------------------------------------------ 56 PROMOTERS AND PROMOTER GROUP ----------------------------------------------------------------------------------------------- 65 RELATED PARTY TRANSACTIONS ------------------------------------------------------------------------------------------------------ 84 SECTION V : REPORT OF THE AUDITOR ON FINANCIAL INFORMATION ---------------------------------------------- 87 STOCK MARKET DATA FOR EQUITY SHARES OF OUR COMPANY -------------------------------------------------------- 107 MANAGEMENTS DISCUSSIONS AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS REFLECTED IN THE FINANCIAL STATEMENTS ---------------------------------------------------------- 109 MATERIAL DEVELOPMENTS ------------------------------------------------------------------------------------------------------------ 128 INFRASTRUCTURE -------------------------------------------------------------------------------------------------------------------------- 129 FINANCIAL INDEBTEDNESS ------------------------------------------------------------------------------------------------------------- 130 SECTION VI : LEGAL AND OTHER INFORMATION ------------------------------------------------------------------------------ 131 OUTSTANDING LITIGATIONS AND DEFAULTS ------------------------------------------------------------------------------------ 131 GOVERNMENT APPROVALS -------------------------------------------------------------------------------------------------------------- 144 STATUTORY AND OTHER INFORMATION ------------------------------------------------------------------------------------------ 145 SECTION VII : ISSUE RELATED INFORMATION ---------------------------------------------------------------------------------- 154 TERMS OF THE ISSUE ----------------------------------------------------------------------------------------------------------------------- 154 SECTION VIII : MAIN PROVISIONS OF OUR ARTICLES OF ASSOCIATION ------------------------------------------- 180 SECTION IX: OTHER INFORMATION ------------------------------------------------------------------------------------------------ 205 MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ------------------------------------------------------------ 205 DECLARATION -------------------------------------------------------------------------------------------------------------------------------- 206

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SECTION I : DEFINITIONS & ABBREVIATIONS

In this Letter of Offer, all references to Rs. or INR refer to Rupees, the lawful currency of India; references to the singular also refers to the plural and one gender also refers to any other gender, wherever applicable, and the words Lakh or Lac mean 100 thousand and the word million means 10 lakh and the word crore means 10 million or 100 lakhs and the word billion means 1,000 million or 100 crores. Any discrepancies in any table between the total and the sums of the amounts listed are due to rounding off. Definitions
Term BAFL or the Company or our Company or Issuer or we or us or our Description Bajaj Auto Finance Limited, a public limited company incorporated under the provisions of the Companies Act, 1956 having its registered office at C/o. Bajaj Auto Limited, Mumbai-Pune Road, Akurdi, Pune : 411 035

Company/Issue-related Terms

Term Articles/Articles of Association Auditor

Board / Board of Directors Bankers to the Issue Capital or Share Capital Chairman Consolidated Certificate Designated Stock Exchange Draft Letter of Offer Equity Share(s) or Share(s) Equity Shareholder Financial Year/Fiscal/FY Issue

Issue Closing Date Issue Opening Date Issue Price Investor(s)

Description Articles of Association of the Company Refers to M/s. Dalal & Shah, Chartered Accountants, East & West Insurance Building, 2nd Floor, 49/55, Bombay Samachar Marg, Fort, Mumbai:400 023, unless otherwise specified. Board of Directors of the Company HDFC Bank Limited Share Capital of the Company Rahul Bajaj, a resident of India In case of physical certificates, the Company would issue one certificate for the Equity Shares allotted to one folio The designated stock exchange for the Issue shall be Bombay Stock Exchange Limited The Draft letter of offer dated August 21, 2006 filed with SEBI for its comments Means the Equity Share of the Company having a face value of Rs. 10 unless otherwise specified in the context thereof Means a holder of Equity Shares Period of twelve months ended March 31 of that particular year, unless otherwise stated Simultaneous but unlinked Issue of 12,596,076 Equity Shares of Rs. 10 each at a premium of Rs. 315 per Equity Share aggregating Rs. 4,093.72 million to the Equity Shareholders on rights basis in the ratio of 6 Equity Shares for every 10 Equity Shares held on the Record Date i.e. November 20, 2006 and 5,248,365 NCDs of Rs. 500 each aggregating Rs. 2,624.18 Million with detachable Warrants in the ratio of 1 NCD with detachable Warrant for every 4 Equity Shares held on the Record Date. January 15, 2007 December 15, 2006 Rs. 325 per Equity Share Shall mean the holder(s) of Equity Shares of the Company as on the Record Date, i.e. November 20, 2006 and Renouncees

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Khokha Buy Back Scheme For the benefit of the prospective applicants in the Issue, the Company along with JM Morgan Stanley Private Limited (JMMS), Lead Manager to the Issue, has finalised arrangements for sale by the applicants, if they so wish of the NCDs. This arrangement for the buy back of the NCDs is referred to as Khokha Buy Back Scheme JM Morgan Stanley Private Limited This Letter of Offer dated December 1, 2006 filed with the Stock Exchanges after incorporating SEBI comments on the Draft Letter of Offer Dipak Poddar, a resident of India Memorandum of Association of the Company The Issue of Equity Shares and NCDs with detachable warrants pursuant to this Letter of Offer Bajaj Auto Limited and Bajaj Auto Holdings Limited November 20, 2006 Intime Spectrum Registry Limited Shall mean the persons who have acquired Rights Entitlements from Equity Shareholders The number of Equity Shares and NCDs with detachable Warrants that a shareholder is entitled to in proportion to his/her shareholding in the Company as on the Record Date Shall refer to the BSE and NSE where the Equity Shares of the Company are presently listed Period commencing from 12 months from the date of Allotment upto the end of 35 months from the Date of Allotment Rs. 500 per warrant

Lead Manager Letter of Offer Managing Director Memorandum/Memorandum of Association Offer Promoter(s) Record Date Registrar to the Issue or Registrar Renouncees Rights Entitlement

Stock Exchange(s) Warrant Exercise Period Warrant Exercise Price

Industry related terms

Term CAGR Doubtful asset ECS ELC EMI HPC Hybrid debt KYC Loss asset Description Compounded Annual Growth Rate (a) a term loan, or (b) a lease asset, or (c) a hire purchase asset, or (d) any other asset which remain a sub-standard asset for a period exceeding 18 months Electronic Clearing Services Equipment Leasing Company Equated Monthly Instalment Hire Purchase finance company Capital instrument, which possess certain characteristics of equity as well as debt. Know your customer (a) an asset which has been identified as loss asset by the NBFC or its internal or external auditor or by the RBI during the inspection of the NBFC, to the extent that it is not written off by the NBFC; and (b) an asset which are adversely affected by a potential threat of non-recoverability due to either erosion in the value of security or non availability of security or due to any fraudulent act or omission on the part of the borrower. Net owned funds Non Performing Asset

NOF NPA

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BAJAJ AUTO FINANCE LIMITED

Owned Funds means, Paid up equity capital, preference shares which are compulsorily convertible into equity, free reserves, balance in share premium account; capital reserve representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of assets; less accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any Personal Computer Purchasing Power Parity Return on Net Worth The asset in respect of which no default in repayment of principal or payment of interest is perceived and which do not disclose any problem nor carry more than normal risk attached to the business A fully paid up capital instrument, which is unsecured and is subordinated to the claims of other creditors and is free from restrictive clauses and is not redeemable at the instance of the holder or without the consent of the supervisory authority of NBFC authority. The book value of such instrument is subjected to discounting as prescribed. (a) an asset, which has been classified as non-performing asset for a period not exceeding 18 months; (b) an asset where the terms of the agreement regarding interest and / or principal have been renegotiated or rescheduled after commencement of operations, until the expiry of one year of satisfactory performance under the renegotiated or rescheduled terms; Owned fund as reduced by investment in shares of other NBFCs and in shares, debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group exceeding, in aggregate, ten per cent of the owned fund. Includes the following a) preference shares other than those which are compulsorily convertible into equity; b) revaluation reserves at discounted rate of fifty five per cent; c) general provisions and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses, to the extent of one-and-one-fourth per cent of risk weighted assets; d) hybrid debt capital instruments; and e) subordinated debt, to the extent the aggregate does not exceed Tier-I capital. Yield to maturity

PC PPP RoNW Standard asset

Subordinated debt

Sub-standard asset

Tier I Capital

Tier II Capital

YTM

Conventional/General Terms

Term Act / Companies Act Depositories Act IT Act Indian GAAP Industrial Policy NRE Account NRO Account SEBI Act, 1992 SEBI DIP Guidelines

Description The Companies Act, 1956 and amendments thereto The Depositories Act, 1996 and amendments thereto The Income Tax Act, 1961 and amendments thereto Generally accepted accounting principles in India The industrial policy and guidelines issued thereunder by the Ministry of Industry, Government of India, from time to time Non-Resident External Account Non-Resident Ordinary Account Securities and Exchange Board of India Act, 1992 and amendments thereto The SEBI (Disclosure and Investor Protection) Guidelines, 2000 issued by SEBI on January 19, 2000 read with amendments issued subsequent to that date
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SIA SICA Securities Act Takeover Code Wealth-Tax Act

Abbreviations Term AGM AS BAHL BAL Bn BSE CAF CDSL CSO DP DSA DSE EGM FDI FEMA FERA FI FII(s) GDP GOI HUF IC IRR ITAT JMMS LC Mn MoU NBFC NCAER NR NRI(s) NSDL NSE OCB RBI RNBC ROC SCB SCN SEBI

Secretariat of Industrial Assistance Sick Industrial Companies (Special Provisions) Act, 1985 US Securities Act, 1933 and amendments thereto The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and amendments thereto The Wealth-Tax Act, 1957 and amendments thereto

Description Annual General Meeting Accounting Standards, as issued by the Institute of Chartered Accountants of India Bajaj Auto Holdings Limited Bajaj Auto Limited Billion The Bombay Stock Exchange Limited Composite Application Form Central Depository Services (India) Limited Central Statistical Organisation Depository Participant Direct Selling Agents Designated Stock Exchange Extraordinary General Meeting Foreign Direct Investment Foreign Exchange Management Act, 1999 Foreign Exchange Regulation Act, 1973 Financial Institutions Foreign Institutional Investors registered with SEBI under applicable laws Gross Domestic Product Government of India Hindu Undivided Family Investment Company Internal Rates of Return Income Tax Appellate Tribunal JM Morgan Stanley Private Limited, company incorporated under the provisions of the Companies Act, having its registered office at 141, Maker Chambers III, Nariman Point, Mumbai 400 021. Loan Company Million Memorandum of Understanding Non Banking Finance Company National Council for Applied Economic Research Non Resident Non Resident Indian(s) National Securities Depository Limited National Stock Exchange of India Limited Overseas Corporate Body The Reserve Bank of India Residuary Non-Banking Company Registrar of Companies, State of Maharashtra, located at PMT Commercial Building, Deccan Gymkhana, Pune 411 004 Scheduled Commercial Banks Show cause notice Securities and Exchange Board of India vi

BAJAJ AUTO FINANCE LIMITED

SECTION II : RISK FACTORS

An investment in Equity Shares involves a high degree of risk. You should carefully consider all the information in this Letter of Offer, including the risks and uncertainties described below, before making an investment in our Equity Shares. If any of the following risk factors actually occur, our business, results of operations and financial condition could suffer and the price of our Equity Shares and the value of your investment in our Equity Shares could decline. Unless specified or quantified in the relevant risk factors below, we are not in a position to quantify financial implications of any of the risks mentioned below. INTERNAL RISK FACTORS AND RISKS RELATING TO OUR BUSINESS Our business is vulnerable to interest rate risk and volatility in interest rates which could adversely affect our income from our operations and our financial performance and adversely affect our profitability. Net interest income constituted 73% of our total income for fiscal 2006. An increase in interest rates applicable to our liabilities, without a corresponding increase in interest rates applicable to our assets shall result in a net decline in our net interest income. Furthermore in the event of rising rates our customers who usually pay a fixed interest rate may not be willing to pay correspondingly higher interest rates on their borrowings and may choose to repay their loans with us if they are able to switch to more competitively priced loans offered by our competitors. In addition, potential customers may be deterred from entering into any financing arrangements in an increasing interest rate scenario. Any inability on our part to retain or attract customers as a result of rising interest rates may adversely affect our earnings in future periods. Interest rates are volatile and are highly sensitive to many factors beyond our control, including the monetary policies of the RBI, deregulation of the financial sector in India, domestic and international economic and political conditions and other factors. Due to these factors, interest rates in India have historically experienced volatility. Yields on the Governments ten-year bonds were 5.2%, 6.7% and 7.5% as of March 31, 2004, March 31, 2005, and March 31, 2006 respectively. We are also exposed to interest rate risk as a rise in interest rates or greater interest rate volatility could adversely affect our short term borrowing cost and therefore our gross spreads. We have been facing competition, particularly from the banking sector and our growth will depend on our ability to compete effectively. We play an important role in providing credit to the unorganized sector and small consumers at the local level. However, several foreign banks in India and Indian banks have over the last few years entered retail lending in a focussed manner, increasing the competition in this segment. As the banks have access to lower cost funds, wider network and greater resources than we do, our performance would be dependent on our ability to maintain low cost of funds and our ability to provide effective and quick service to our customers. If we are unable to access funds at an effective cost that is comparable to or lower than our competitors, we may not be able to offer competitive interest rates for our loans. While we believe that we have historically been able to offer competitive interest rates for our loans, there can be no assurance that we will be able to do so in the future, as our competitors may be able to offer the same at rates that are lower than ours. Growing competition may result in a decline in our market share, which may reduce our revenues and margins. In such a situation we are not certain of retaining our customers and may also lose potential customers to such competitors. This may have an adverse impact on our business, our future financial performance and the price of our equity shares. Our business would suffer if we are unable to maintain the quality of our asset portfolio. We have been able to maintain the quality of our asset portfolio in the past on the basis of internal controls and policies. The RBI norms for classifying an asset as a non-performing asset in case of a loan, are where the instalment / interest has remained overdue for a period of six months or more and in case of hire purchase finance / lease asset, where the instalment / rental has become overdue for a period of 12 months or more. vii

BAJAJ AUTO FINANCE LIMITED As of March 31, 2004, 2005, 2006 and September 30, 2006, our gross non-performing assets were Rs. 66.30 million, Rs. 236.50 million, Rs. 572.50 million and Rs. 892.40 million respectively. With effect from fiscal 2005, we changed our accounting policy for provisioning requiring us to make additional provisioning for customer accounts which were outstanding for six months and above as compared to 12 months and above followed previously. Any such change in provisioning policy in the future may require us to make additional provisioning. For more details on the change in our accounting policy, please refer to the section titled Report of the Auditor on Financial Information on page 87 of this Letter of Offer. Whilst we shall continue to provide loans in the future and increase our loan portfolio, we believe that our provisions for non-performing assets are adequate to cover identified losses in our asset portfolio. If we are not able to maintain the asset quality this may result in increase in the level of non-performing assets, which would adversely affect our future financial performance. Failure to integrate our new information technology systems and implement the same in our organization in a timely and orderly manner could have a significant adverse impact on our operation. Improved and robust, new information technology systems is key to our growth plans. We are in the process of upgrading the information technology systems used by us in our head office and branches. This shall result in substantial capital expenditure in fiscal 2007. The implementation of this information technology platform of the Company may result in substantial management time and costs being incurred. In the event we are not able to successfully integrate the same, we may not be able to effectively compete with banks and also may be subject to certain systemic risks like credit assessment, asset liability management, default and recovery controls, customer verification processes, centralisation of the post-dated cheques collection management, risk assessment and risk control. Therefore our inability to integrate our new information technology systems and implement the same in our organisation would have significant adverse impact on our operations and may affect our competitiveness. Our reliance on Bajaj Auto Limited may impact our growth. For fiscal 2005, fiscal 2006 and for the six months period ended September 30, 2006, 56%, 62% and 69% respectively of our total income was derived from loans provided to two and three wheeler customers of Bajaj Auto Limited. Presently, we do not finance two or three wheelers other than those manufactured by Bajaj Auto Limited. The two wheeler segment in India is very competitive and Bajaj Auto Limited faces increasing competition from Indian and foreign players. Any reduction in their sales, particularly through the financing option, may result in us disbursing fewer two and three wheeler loans, which may adversely impact our financial performance and results of operations in the event that we are unable to substitute the reduced two and three wheeler disbursals with the other retail finance product disbursals. Our success in a large part depends upon our management team and skilled personnel and our ability to attract and retain such persons. Attracting and retaining talented professionals is a key element of our strategy and we believe it to be a significant source of competitive advantage. As we are particularly focused on tapping the rural and semi urban sectors for providing finance, the success and growth of our business will depend on our ability to identify, attract, hire, train, retain and motivate skilled regional personnel as we continue to grow. Competition for qualified professional personnel at our corporate and branch offices is intense as these personnel are in limited supply. There can be no assurance that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel. Our inability to attract and retain talented professionals or the resignation or loss of key management personnel may have an adverse impact on our business, future financial performance and the price of our Equity Shares. Our inability to grow further or succeed by financing retail products may adversely affect our business. We are relatively new entrants in certain retail products, such as providing loans for consumer durables, personal computers and consumer loans. While we anticipate continued demand in this area we cannot assure that these portfolios will continue to grow as expected. Further, we are not certain that we would be successful in any of our new initiatives which we may undertake to grow our business. Our inability to grow viii

BAJAJ AUTO FINANCE LIMITED further or succeed in financing such retail products may adversely affect our business, our future financial performance and price of our Equity Shares. Any inability to manage our rapid growth could disrupt our business. We have experienced high growth in recent periods. Our disbursements across our business operations have grown by 39% from fiscal 2005 to fiscal 2006. However, our future growth plans can place significant demands on our management and other resources. There can be no assurance that we will be able to execute our strategy on time and within the stipulated budget or that we will meet the expectations of the customers and achieve our planned growth. There are operational risks associated with our industry which may have an adverse impact on our performance. We are exposed to many types of operational risk, including the risk of fraud or misconduct by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record keeping errors or errors resulting from faulty system. We also outsource some of our key functions such as debt recovery, repossession of the products, loan application processing and credit verification. Further, for our rural operations, a substantial amount of our collections are in the form of cash transactions. There can be no assurance that we will be able to safeguard these collections from all of our rural branches. Given the large volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. We also face the risk that our control and procedure may prove inadequate or may be circumvented thereby causing delays in detection or errors in information. Although we currently maintain and are in the process of upgrading our systems of controls to keep operational risk to a minimum, there could be no assurance that we will not suffer loss from operational risk in the future that may be material in amount. We face greater credit risk than our competitors. Our credit risk is higher as most of our consumers are based in semi-urban and rural areas. This may affect the quality of information available to us about the credit history of our consumers as many of them may have borrowed money for the first time from the organised financial sector. We focus on loans for nonbranded computers, which are not usually covered by a warranty by the seller nor does their repossession in case of default fetch a reasonable price. Therefore any default in such loans may lead to an increase in the level of NPAs and reduced recovery amount which could have an adverse impact on our business, our financial performance, and the price of our equity shares. We depend on our customers themselves in respect of information submitted about them while assessing their credit worthiness. In deciding whether to extend credit or enter into other transactions with the customers and counter parties, we may rely on information furnished to us by or on behalf of our consumers, including the financial information based on which we perform our credit assessment. We may also rely on certain representations as to the accuracy and completeness of that information and the verification of the same by outsourced agencies. Further, any changes in this information may not be made available to us nor may the information that we have gathered be sufficient for completely assessing the risk profile of the customer. Our financial conditions and result of operational system could be negatively affected by relying on financial information or other information that may be materially incorrect or incomplete or misleading. We may experience delays in enforcing our collateral when borrowers default on their obligations to us, which may result in failure to recover the expected value of collateral and adversely affect our financial performance. All of our loans to customers except for consumer loans are secured by the assets financed. We generally have a first ranking charge on the assets financed. Although we seek to maintain a collateral value to loan ratio of at least 100% for our secured loans, technological obsolescence, elapse of time or the other risks described above could result in a fall in collateral values. Additionally, the realizable value of our collateral in liquidation may be lower than its book value. ix

BAJAJ AUTO FINANCE LIMITED Any failure to recover the entire value of the collateral security could expose us to further loss. Any such additional loss could adversely affect our business and financial performance and the price of our Equity Shares. Further, the ability of our borrowers to perform their obligations will depend primarily on the financial condition of the borrower. If these borrowers financial condition were to be adversely affected and they are unable to meet their obligations, the value of the underlying assets available to repay the loans could be or may become insufficient to pay the full principal and interest on the loans, which could expose us to significant losses. Material changes in the regulations that govern us could cause our business to suffer and the price of our Equity Shares to decline. Non Banking Financial Companies in India are subject to detailed supervision and regulation by the RBI. In addition, as an NBFC we are subject generally to changes in Indian law, as well as to changes in regulation and government policies and accounting principles. See the section titled Regulations and Policies on page 49 of this Letter of Offer for more details. We are presently required by the RBI to maintain a minimum capital adequacy of 12%. In addition, the RBI also requires us to transfer 20% of our profits annually to a reserve fund. We are also required to maintain liquid assets in the form of investment in approved securities and unencumbered term deposits to the extent of 15% of the outstanding deposits. The RBI also requires us to make provisions in respect of NPAs. As a prudent practice, we make additional provisioning for NPAs at a faster rate than that prescribed by the RBI. The laws and regulations governing us could change in the future and any such changes could adversely affect our business, our future financial performance and the price of our Equity Shares, by requiring a restructuring of our activities, increasing costs or otherwise. Our Promoters will collectively continue to hold a substantial portion of our Equity Shares after the Issue and can therefore determine the outcome of shareholder voting. After the completion of this Issue, assuming that our Promoters subscribe to only their entitlement and not any additional amounts, they will collectively hold approximately 41.50% of our Equity Shares. Consequently, our Promoters will continue to exercise a significant degree of influence over us and will be able to control the outcome of any proposal that can be passed with a majority shareholder vote. Further, after completion of the Issue, assuming that our Promoters subscribe to only their entitlement and not any additional amounts, they will continue to collectively hold approximately 41.50% of our Equity Shares excluding the shares they may get on exercising the option to convert the warrants allotted to the Promoters on a preferential basis and will collectively hold 48.84% of our Equity Shares which includes the shares that they may get on exercising the option to convert the warrants allotted to Promoters on preferential basis. Further, we understand from BAL that they may acquire a further 27% shareholding in Maharashtra Scooters Limited, which presently holds 4.88% in us. If the said transaction is consummated, Maharashtra Scooters Limited would become a subsidiary of BAL. Presently, five of BALs directors namely, Rahul Bajaj, Madhur Bajaj, Rajiv Bajaj, Sanjiv Bajaj and DS Mehta are also Directors on our Board. So long as our Promoters own a substantial portion of our Equity Shares, they may continue to be able to elect a substantial number of our Board of Directors and remove any Director, by way of a resolution approved by a simple majority of shareholders in a general meeting. Our Promoters will be able to control most matters affecting us, including the appointment and removal of our officers; our business strategy and policies; any determinations with respect to business combinations and acquisitions or dispositions of assets; our dividend payout; and our capital structure and financing. Further, the extent of our Promoters shareholding in us may result in delay or prevention of a change of management or control of our Company, even if such a transaction may be beneficial to our other shareholders. We are unable to restate our financial statements with respect to provisioning for NPA based on six months outstanding as per the requirements of the SEBI DIP Guidelines due to lack of historic information of the respective period. Restatement, if possible, would have resulted in decline in our net profits for those prior years. x

BAJAJ AUTO FINANCE LIMITED We have followed the directives on prudential norms for income recognition, provisioning for bad and doubtful debts etc. issued from time to time by the RBI. Accordingly, we have not accrued income in respect of hire purchase finance, lease contracts and bad and doubtful debts which are NPAs as defined therein and have provided for the said NPAs in accordance with the RBIs directives. As a matter of abundant caution, we have, from the year ended March 31, 2005 not accrued income from NPAs overdue for six months and more instead of 12 months and more as per the RBIs directives and have provided for the same in our books. As a result, the profit before tax during fiscal 2005 declined by Rs. 33,077,077. However, due to non availability of historic information for the said recognition of NPAs, we are unable to restate our financial statements as per the requirements of the SEBI Guidelines. If we were to restate our financial statements for the periods prior to fiscal 2005 for the revised accounting policy on provisioning, then the restatement would have resulted in a decline in our net profits for each of those years. We are involved in a number of legal proceedings We are often involved in litigations for a variety of reasons, which generally arise because we seek to recover our dues from borrowers or because customers seek claims against us. For details of litigations against us, please see Outstanding Litigations and Defaults on page 131 of this Letter of Offer. Outstanding Litigations relating to the Company, the Directors, the Promoters and group companies A) Against the Company B) There are five criminal complaints filed against us; There are five interest tax related appeals for claims aggregating approximately Rs. 2.31 million; There are six income tax related appeals for claims aggregating approximately Rs. 20.59 million; There is one demand notice issued to us in respect of service tax for claims aggregating approximately Rs. 521.21 million; One civil suit has been filed against us for an amount aggregating Rs. 10.20 million in relation to the alleged defects in the equipment leased by the us; There are approximately nine civil suits filed against us for amounts aggregating approximately Rs. 0.5 million; There are approximately 45 civil suits filed against us where the financial impact cannot be quantified; There are approximately 127 consumer complaints filed against us for claims aggregating approximately Rs. 4.90 million; In addition, are approximately 54 consumer complaints filed against us where the financial impact cannot be quantified; There are approximately 18 claims filed against us before various Motor Accident Claims Tribunals for amounts aggregating approximately Rs. 10.95 million; We have been made party to 34 disputes where the ownership of our shares is in dispute.

Against the Directors There is a petition under sections 397, 398 and 402 of the Act against Rahul Bajaj, Madhur Bajaj, Rajiv Bajaj, Sanjiv Bajaj and DS Mehta.

C)

Against the Promoters a. Bajaj Auto Limited There is one criminal dispute against BAL pending in the court of the JMFC, Nagpur in respect of an amount aggregating approximately Rs. 0.05 million; xi

BAJAJ AUTO FINANCE LIMITED b. D) There are approximately 14 income tax related appeals filed by the income tax department for an amount aggregating approximately Rs. 1,880.10 million; There are approximately 7 income tax related appeals filed by BAL for an amount aggregating approximately Rs. 1,232.40 million; There are approximately 441 excise related SCNs in respect of 107 different types of disputes for amounts aggregating approximately Rs. 625.20 million; There are approximately 268 customs related demand notices for amounts aggregating approximately Rs. 87.3 million There are approximately 19 sales tax related disputes for amounts aggregating approximately Rs. 110.30 million; There are approximately 20 property tax related disputes for amounts aggregating approximately Rs. 62.30 million; There are approximately five octroi related disputes for amounts aggregating approximately Rs. 22.80 million; There are approximately 598 consumer disputes for amounts aggregating approximately Rs. 67.00 million; One dispute has been filed against BAL for an amount aggregating approximately 25,000 million Italian Lira approximately equivalent to Rs. 750.00 million as on September 30, 2006; There is one civil dispute involving BAL for an amount aggregating approximately Rs. 1,087 million; There is one civil dispute involving BAL for an amount aggregating approximately Rs. 300 million; There are approximately 168 suits pertaining to temporary workmen the liability in respect of which cannot be quantified; There are approximately 51 suits pertaining to other labour matters for amounts aggregating approximately Rs. 56.10 million; There are two disputes in respect of employees state insurance contributions claimed by the authorities for an amount aggregating approximately Rs. 43.10 million; There is one dispute in respect of electricity charges for an amount aggregating approximately Rs. 0.21 million; There are approximately nine disputes in respect of accidental claims for amounts aggregating approximately Rs. 4.62 million; In addition, there are two disputes for an amount aggregating approximately Rs. 12.69 million. Contingent liability in respect of bills discounted with Banks for an amount aggregating approximately Rs. 24.20 million; Bajaj Auto Holdings Limited There are six income tax related appeals filed by the income tax department for amounts aggregating approximately Rs. 19 million. There is one income tax related appeal filed by the company for an amount of Rs. 0.10 million.

Against group companies a. Bajaj Allianz General Insurance Company Limited The Company, being an insurance company, has cases before various Courts in the usual course xii

BAJAJ AUTO FINANCE LIMITED of business. These cases have been provided for in accordance with the companys policies for claims reserving. b. Bajaj Allianz Life Insurance Company Limited There are 80 consumer disputes against Bajaj Allianz Life Insurance Company Limited pending in Consumer Forums and 20 cases against Bajaj Allianz Life Insurance Company Limited are pending before the Insurance Ombudsman with respect to an amount aggregating to approximately Rs. 32.70 million. There are 12 disputes pending in respect of an amount aggregating approximately Rs 5.14 million. Bajaj Electricals Limited There are seven disputes against Bajaj Electricals Limited for an amount aggregating approximately Rs. 24.44 million. Maharashtra Scooters Limited There are 12 income tax related disputes for an amount aggregating approximately Rs. 75.29 million; There are two sales tax disputes for an amount aggregating approximately Rs. 4.95 million; There are 16 excise related disputes for an amount aggregating approximately Rs. 2.11 million; There are approximately 209 consumer disputes against Maharashtra Scooters Limited for an amount aggregating approximately Rs. 0.20 million; In addition, there are 12 civil disputes for an amount aggregating approximately Rs. 0.12 million. Mukand Limited There are two criminal complaints against the Mukand Limited where the amount involved cannot be quantified; There are four civil cases against Mukand Limited for an amount aggregating approximately Rs. 17.87 million; There are four arbitration proceedings initiated against Mukand Limited for an amount aggregating approximately Rs. 1,070.40 million; There are 18 disputes involving labour laws against Mukand Limited where the amount involved cannot be quantified.

c. d. e.

For further details of the cases mentioned above, see the section titled Outstanding Litigations and Defaults on page 131 of this Letter of Offer. Contingent liabilities not provided for (Figures in Rs. million)
As at 31 March, 2002 Description Commercial Tax - Matter under Appeal Others Service Tax - Matter under Appeal
* See Note No. 4 (a) to the audited accounts.
st

2003

2004

2005

2006

As at 30th September 2006

0.15 0.02 -

0.15 0.03 -

0.15 0.04 -

0.15 0.09 -

0.15 0.10 -

0.15 0.12 521.21*

xiii

BAJAJ AUTO FINANCE LIMITED We are subject to certain restrictive covenants in our loan/debentures documents, which may restrict our operations and expansion ability and may adversely affect our business. We have entered into certain debenture trust deeds and loan agreements in respect of our borrowings, which contain certain restrictive covenants or require us to obtain approval from the trustee or the lender, as the case may be, in certain circumstances for disposing of (including creating any charge on) our specified assets, undertaking any merger or reorganisation, appointing a nominee Director, declaring dividends in certain circumstances, amending our memorandum and articles of association, making substantial change to the general nature or scope of our business, incur or assume any debt, reduce our share capital, prepay any long-term debt and in case of any change in our management. Although we have generally not encountered difficulties in obtaining consent from the trustee or the lender, as the case may be, for desired actions in the past, no assurance can be given that such consent will be granted in the future. In addition, pursuant to the trust deed in respect of our non-convertible debentures, the trustee shall have a right to appoint a nominee director on our Board in the event of two consecutive defaults in payment of interest to the debenture holders or any default in redemption thereof. For further details, please refer to the section titled Financial Indebtedness on page 130 of this Letter of Offer. Our management will have significant flexibility in applying the proceeds of the Issue. The fund requirement and deployment mentioned in the Objects of the Issue have not been appraised by any bank or financial institution. We intend to use the proceeds of the Issue for capital expenditure described in the section Objects of the Issue beginning on page 20 of this Letter of Offer. The objects of the Issue are to strengthen the capital base of the Company, to augment the long term resources of the Company to leverage our growing business, to redeem the existing short term working capital loan, so that the same is available for future operations of the Company, for investments in new information technology systems and to meet the expenses of the Issue. The fund requirement and deployment is based on internal management estimates and has not been appraised by any bank or financial institution. Accordingly, the management will have significant flexibility in applying the proceeds received by us from the Issue. We intend to rely on our internal systems and controls to monitor the use of such proceeds. We have appointed SICOM Limited as the monitoring agency to monitor the use of such proceeds and undertake periodic reporting as required by the SEBI Guidelines. Our Objects of the Issue do not contemplate creation of major net tangible assets. The Objects of the Issue are to strengthen the capital base of the Company, to augment the long term resources of the Company to leverage our growing business, to redeem the existing short term working capital loan, so that the same is available for future operations of the Company, for investment in new information technology systems and to meet the expenses of the Issue. As a result, the proceeds of the Issue shall not be utilised for creation of major net tangible assets. For more information on the use of proceeds from the Issue, please refer to the section titled Objects of the Issue on page 20 of this Letter of Offer. In the past we were unable to meet with our Promise v. Performance pursuant to a public issue. We made a public issue in March 1994 of 4,175,000 equity shares of the face value Rs. 10 each per equity share for cash at a premium of Rs. 80 per share aggregating Rs. 375,750,000. The objects of the issue were to part finance our then proposed expansion programme, to strengthen our net worth which in turn would have increased our debt raising capacity and to list the equity shares on the stock exchanges. However, due to unviable return and non availability of quality new assets, the actual leasing business done in the financial year 1996-97 was substantially lower than the projected level of business resulting in lower income, PBT and PAT as compared to the promised projections. For more details on our promise versus performance please refer to the section entitled Promise v. Performance on page 51 of this Letter of Offer. In addition, one of our group companies, Hercules Hoists Limited, had made a public issue in 1962 and the prospectus of which is not available with Hercules Hoist. Accordingly we are unable to confirm if any projections have been given in the offer document and whether they were met.

xiv

BAJAJ AUTO FINANCE LIMITED Mukand Limited, one of our Promoter Group companies, has been referred to the Corporate Debt Restructuring (CDR) Cell. In fiscal 2002, Mukand Limited one of our Promoter Group companies, was referred to the CDR Cell for realignment of its debts under the CDR mechanism. The Financial Restructuring Package was approved by the CDR Cell in July, 2003. This package, inter alia, required the promoters and associates of Mukand Limited to pledge their shares in Mukand Limited and certain agreed shares of BAL and provided for the realization of non-core assets, loans and advances, as well as the payment of interest on, and instalments of, term loans. The package provided that in the event the cash flow of Mukand Limited improves, its lenders have the right of being recompensed upto 12% per annum in excess of the effective IRR charges in terms of the package for the initial eight years. In the event of default, the lenders have the right to cancel, suspend, reduce or modify any or all of the relief and concessions or vary the terms and conditions of the package. The package further provided for the infusion of fresh capital of Rs. 500 million by Mukand Limited, which capital was infused by Mukand Limited by way of a rights issue which closed on February 26, 2004. For further details of this rights issue, please refer to the section titled Our Promoter Group on page 65 of this Letter of Offer. Loss making Promoter group companies One of our promoter group companies have in recent years incurred losses (pursuant to non consolidated financial statements), as set forth in the table below: (in Rs. million)

Name of the Promoter Group company Bajaj Allianz Life Insurance Company Ltd.

Fiscal 2004 (268.13)

Fiscal 2005 (367.56)

Fiscal 2006 (985.44)

We do not currently own nor have we leased the premises at which our registered office is located. We do not currently own or have a lease for the premises at which our registered office and our corporate office is located since our inception. We have an arrangement with BAL through which we compensate for the premises and infrastructure utilized by us. In the event that BAL requires us to vacate the premises, we will have no recourse to any relief or remedy and will be required to vacate the premises and seek new premises, which may increase our operating costs. We have not registered any trademarks, and our failure to protect our intellectual property rights may adversely affect our business. We have not registered the Bajaj Finance trademark or logo, nor have we made any application to register the same. Further, we do not have any arrangement with BAL for use of the Bajaj trade name. We operate in a competitive environment, where generating brand recognition will be a significant element of our business strategy. If we fail to successfully obtain or enforce our trademark rights with respect to our logo, we may need to change our logo. Any such change could require us to incur additional costs and may adversely impact our business, financial condition and results of operations. As on date of this Letter of Offer we have 3,006,540 outstanding warrants which may lead to dilution of our existing share capital. We have issued and allotted on January 18, 2006, 3,006,540 warrants at Rs. 410 per warrant to one of our Promoters, Bajaj Auto Limited with the option to convert the said warrants into equity shares within 18 months from the said date. We do not know how many of these warrants would be converted into Equity Shares during the conversion period. Subject to conversion of our warrants during the conversion period, our Capital Structure may be subject to change and there could be dilution of our existing share capital. The Warrant Exercise Price is not indicative of the future market price of Equity Shares of the Company.

xv

BAJAJ AUTO FINANCE LIMITED The Warrant Exercise Price shall be Rs. 500. If the Warrant Exercise Price, during the Warrant Exercise Period is higher than the prevailing market price, the Warrant Holders may not be willing to exercise the warrants, as a result of which we may not be able to raise the amount that we propose to raise through the warrants. This may require us to raise funds through alternate means if required, or use our internal accruals to substitute the same. The investors may also note that the Warrant Exercise Price of Rs. 500 per warrant should not be taken to be indicative of the market price of the equity shares, whether presently or after the equity shares are issued upon the exercise of warrants are listed. No assurance can be given regarding the active / sustained trading in the equity shares or the price at which the Equity Shares offered under the present Issue will trade either after the listing or at the time of exercise of warrants. Further, any exercise of the warrants would lead to further dilution of our Share Capital. EXTERNAL RISK FACTORS A slowdown in economic growth in India could cause our business to suffer. Our performance and the quality and growth of our assets are necessarily dependent on the health of the overall Indian economy especially across south India and western India which are our main markets. A slowdown in the Indian economy could adversely affect our business, including our ability to grow our asset portfolio, the quality of our assets, and our ability to implement our strategy. Indias economy could be adversely affected by a general rise in interest rates, weather conditions adversely affecting agriculture or various other factors affecting the growth of industrial, manufacturing and services sector. In addition, the Indian economy is in a state of transition. The share of the services sector of the economy is rising while that of the industrial, manufacturing and agricultural sectors is declining. It is difficult to gauge the impact of these fundamental economic changes on our business. The Indian economy has shown sustained growth over the last few years with real GDP growing at 6.9% in the fiscal 2005, 8.5% in the fiscal 2004 and, 4% in fiscal 2003. During the first quarter of fiscal 2006, real GDP grew at 8.1% compared to 7.5% during the first quarter of fiscal 2005. With the increasing importance of the agricultural sector to our business, any slowdown in the growth of the agricultural sector could also adversely impact our performance. Growth in agricultural production in India has been variable. Agricultural production grew by 2% in the first quarter of fiscal 2006, compared to 3.8% in the first quarter of fiscal 2005. Agricultural GDP grew at 1.1% in fiscal 2005 and 9.6% in fiscal 2004 while it declined by 7.2% in fiscal 2003 partly due to poor monsoons in fiscal 2002 which had an impact in fiscal 2003 (Source: Central Statistical Organization, Ministry of Statistics and Programme Implementation). As we provide finance for acquisition of two wheelers and three wheelers in semi-urban areas and rural areas, any slowdown in the growth of services sector and agriculture sector could adversely affect the growth of our business including our ability to grow our asset portfolio, the quality of our assets, our future financial performance, our shareholders funds, our ability to implement our strategy and the price of our equity shares. Political instability and a significant change in the Government of Indias economic liberalization and deregulation policies could disrupt our business and cause the price of our Equity Shares to go down. Our assets and customers are located in India. The Government of India has traditionally exercised and continues to exercise a dominant influence over many aspects of the economy. Its economic policies have had and could continue to have a significant effect on private sector entities, including us, and on market conditions and prices of Indian securities, including our equity shares. Since 1996, the Government of India has changed four times. Although the current coalition government elected in May 2004, and led by the Indian National Congress has continued Indias current economic liberalization and deregulation policies, we cannot control or predict the future course of the Government of Indias policies. Any significant change in the Governments policies or political instability could adversely affect business and economic conditions in India and could also adversely affect our business, our future financial performance, our shareholders funds and the price of our Equity Shares.

xvi

BAJAJ AUTO FINANCE LIMITED Difficulties faced by other financial institutions or the Indian financial sector generally could cause our business to suffer and the price of our Equity Shares to decline. We are exposed to the risks of the Indian financial sector which in turn may be affected by financial difficulties and other problems faced by Indian financial institutions. Certain Indian financial institutions have experienced difficulties during recent years, and some co-operative banks have also faced serious financial and liquidity crises. Any major difficulty or instability experienced by the Indian financial sector could create adverse market perception, which in turn could adversely affect our business and financial performance and the price of our Equity Shares. Financial difficulties and other problems in certain financial institutions in India could cause our business to suffer and the price of our Equity Shares to go down. We are exposed to the risks of the Indian financial system which in turn may be affected by financial difficulties and other problems faced by certain Indian financial institutions. Certain Indian financial institutions have experienced difficulties during recent years. Some co-operative banks have also faced serious financial and liquidity crises. The problems faced by individual Indian financial institutions and any instability in or difficulties faced by the Indian financial system generally could create adverse market perception about Indian financial institutions, banks, non-banking financial companies. This in turn could adversely affect our business, our future financial performance, our shareholders funds and the price of our Equity Shares. Terrorist attacks, civil unrest and other acts of violence or war involving India and other countries could adversely affect the financial markets and our business. Terrorist attacks and other acts of violence or war may negatively affect the Indian markets on which our Equity Shares trade and also adversely affect the worldwide financial markets. These acts may also result in a loss of business confidence. In addition, any deterioration in relations between India and its neighbouring countries might result in investor concern about stability in the region, which could adversely affect the price of our Equity Shares. India has also witnessed civil disturbances in the past and it is possible that future civil unrest as well as other adverse social, economic and political events in India could have a negative impact on us. Such incidents could also create a greater perception that investment in Indian companies involves a higher degree of risk and could have an adverse impact on our business and the price of our Equity Shares. Natural calamities could have a negative impact on the Indian economy and cause our business to suffer. India has experienced natural calamities such as earthquakes, a tsunami, floods and drought in the past few years. The extent and severity of these natural disasters determines their impact on the Indian economy. For example, as a result of drought conditions in the country during fiscal 2003, the agricultural sector recorded a negative growth of 5.2%. The erratic progress of the monsoon in 2004 affected sowing operations for certain crops. Further prolonged spells of below normal rainfall or other natural calamities could have a negative impact on the Indian economy, adversely affecting our business and the price of our Equity Shares. Any downgrading of Indias debt rating by an international rating agency could have a negative impact on our business. Any adverse revisions to Indias credit ratings for domestic and international debt by international rating agencies may adversely impact our ability to raise additional financing, and the interest rates and other commercial terms at which such additional financing is available. This could have a material adverse effect on our business and financial performance, our ability to obtain financing for capital expenditures and the price of our Equity Shares. You will not receive the Equity Shares and other instruments that you subscribe for in this Issue until thirty days after the date on which this Issue closes and which will subject you to market risk. The Equity Shares you purchase in this Issue will not be credited to your demat account with depository participants until approximately 30 days from the Issue Closing Date. You can start trading on such Equity Shares only after receipt of listing and trading approvals in respect of these shares. Since our Equity Shares xvii

BAJAJ AUTO FINANCE LIMITED are already listed on the stock exchanges, you will be subject to market risk from the date you pay for the Equity Shares to the date they are listed. Further, there can be no assurance that the Equity Shares allocated to you will be credited to your demat account, or that trading in the Equity Shares will commence, within the time periods specified above. In addition, there has been significant recent volatility in Indian stock markets, with the BSE Sensex declining by approximately a quarter in the month since it reached its all time closing high of 12,612 on May 10, 2006. On August 16, 2006, the BSE Sensex closed at 11,448. The market price of our Equity Shares could fluctuate significantly as a result of market volatility. If investors do not pay the balance amount payable on allotment of NCDs, the amount raised through the Issue will be lower than the proposed Issue size. Further, NCDs issued to such investors will not be traded until the time these NCDs become fully paid and corporate action for appropriation of the amounts has taken place. Since the NCD are partly paid up, balance amount payable on allotment of NCDs may not be paid by some or all investors and the amount raised through the Issue may be lower than the proposed Issue. Further, NCDs issued cannot be traded after the date of allotment until the Balance Amount Payable is received and corporate action for appropriation of the amounts received is taken and the NCDs are made fully paid-up. Amount payable by the specified date for balance amount payable by NCD holders shall be notified along with the allotment cum call notice to be sent to the applicants. The process of corporate action may take about two weeks from the date of payment of the Balance Amount Payable. For further details, please refer to the section titled "Issue Procedure" on page 166 of the Letter of Offer. Notes to Risk Factors: 1. This simultaneous but unlinked Issue of 12,596,076 Equity Shares of Rs. 10 each for cash at a premium of Rs. 315 per Equity Share aggregating Rs. 4,093.72 Million on rights basis to the existing Equity Shareholders of the Company in the ratio of 6 Equity Share for every 10 Equity Shares and 5,248,365 NCDs of Rs. 500 each aggregating Rs. 2,624.17 Million with detachable Warrants in the ratio of 1 NCD with detachable warrant for every 4 Equity Shares held on the Record Date i.e. November 20, 2006.The total issue of Equity Shares and NCDs with detachable warrants assuming prior to conversion is Rs. 6,717.90 million and after assuming full conversion of the Detachable Warrants into Equity Shares during the Warrant Conversion Period at the Warrant Exercise Price would aggregate Rs. 9,342.09 million. The net worth of our Company before the Issue (as of September 30, 2006) was Rs. 4,933.84 million. The book value per equity share as of September 30, 2006 was Rs. 235.02 per Equity Share. Refer to our financial statements relating to related party transactions in the section titled "Financial Statements - Related Party Disclosures" on page 84 of this Letter of Offer. For details of transactions in Equity Shares of the Company by the Promoter group and Directors of Company in the last six months preceding the date of this Letter of Offer, please refer to pages 17 and 61 respectively of this Letter of Offer. For details of interests of our Directors and key managerial personnel, please refer to the section titled "Our Management" on page 56 of this Letter of Offer. For details of the interests of our Promoters and promoter group, please refer to the section titled "Promoter and Promoter Group" on page 64 of this Letter of Offer. Investors may contact the Lead Manager for any complaints, information or clarifications pertaining to the Issue. The Lead Manager is obliged to provide the same to investors. Before making an investment decision in respect of this Issue, Investors are advised to refer to the section titled "Basis for Issue Price" on page 23 of this Letter of Offer. Please refer to the section titled "Basis of Allotment" on page 171 of this Letter of Offer for details of the basis of allotment. Average cost of acquisition of per equity shares of the Company for our Promoters is as under: Bajaj Auto Limited: Rs. 100.21 Bajaj Auto Holdings Limited: Rs. 40.66

2. 3. 4. 5.

6.

7. 8. 9. 10.

We and the Lead Manager are obliged to keep this Letter of Offer updated and inform the public of any material change / development till the listing and trading of the Equity Shares offered under the Issue commence. xviii

BAJAJ AUTO FINANCE LIMITED

SECTION III: INTRODUCTION SUMMARY

Unless stated otherwise, the financial data in this section is taken from our restated financial statements set forth in this Letter of Offer, beginning on page 87. In this section any reference to we, us, our, the Company or BAFL refers to Bajaj Auto Finance Limited.

Summary Industry Overview Macro Economic Scenario The Indian economy has grown significantly in recent years. The Indian Gross Domestic Product (GDP) recorded a growth rate of 7.5% in 2004-05 over the previous year and amounted to almost Rs. 28,500 billion. The growth rate recorded was amongst the highest ever, and according to the revised estimates of the Central Statistical Organisation, growth rates for 2005-06 are expected to be 8.4%. The overall growth of GDP during the first quarter of 2006-07 was 8.9% as compared to 8.5% during the first quarter in 2005-2006. The services segment will aid in accelerating growth and it is estimated to have grown at 10.4% in the first quarter of 2006-07. The growth numbers reaffirm Indias position as an accelerated emerging economy on the global map. According to the World Bank, India is also the 4th largest economy in terms of purchasing power parity (PPP). [Source: Central Statistical Organisation - Economic Survey 2004-2005, Monthly Economic Report- October 2006, Businessworld-The Marketing Whitebook, 2005] The Non-Banking Finance Companies Industry Structure
(3)

The Reserve Bank of India (RBI) Act, 1934 as amended in 1997 defines the principle activity of a NonBanking Finance Company (NBFC) as that of receiving deposits or that of a financial institution, such as, lending, investment in securities, hire purchase finance or equipment leasing. NBFCs in India service a gamut of segments and could be a combination of the definitions in the table below. [Source: ICRA] Two Wheeler Financing Market Overview The outstanding portfolio of the two-wheeler finance market is expected to reach Rs 308 billion by 2009-10, from the current size of Rs. 181 billion, recording a CAGR of approximately 20% during the period. The organized two-wheeler finance market is estimated to be Rs 263 billion in 2009-10. The average tenure is expected to increase from approximately 26 months in 2005-06 to 30 months in 2009-10, due to an increase in the number of loans being sanctioned for duration of 36 months and above. [Source: CRIS INFAC, Two Wheeler Finance Industry, July 2006] Two wheeler finance portfolio (Rs. Billion)
2001-02E Outstanding portfolio Average tenure (months) 50 21 2004-05E 114 25 2005-06E 149 26 2006-07P 181 27 2009-10P 308 30 2002 2006 CAGR (%) 31.71% 2006-2010 CAGR (%) 19.86%

Source: CRIS INFAC, Two Wheeler Finance Industry, July 2006

The percentage of vehicles being financed through credit has been increasing steadily over the past few years, recording a penetration of 67% in 2005-06. This penetration is expected to increase to 75% in 200910. The average loan-to-value (LTV) for two wheeler financing has also been on the rise, primarily backed 1

BAJAJ AUTO FINANCE LIMITED by the aggressive approach of private sector banks. It has increased from about 71% in 2001-02 to about 76% in 2005-06. Going forward, the average LTV is expected to stabilise at about 80% by 2009-10.
(Source: CRIS INFAC, Two Wheeler Finance Industry, July 2006)

Key Growth Drivers The two wheeler finance market is estimated to record a CAGR of 19.86% between 2005-06 and 2009-10. Some of the drivers fuelling the growth in the two wheeler finance segment are the following: Rising income levels within various economic strata. Lack of adequate public transport facilities. An increase in the geographical presence of financiers to the rural markets in India augmented by an increase in the aspiration levels in rural India. Availability of improved models in the auto segment and lack of adequate public transport infrastructure Higher aspirational levels from the rural market and the new found interest of the female population.

Source : CRIS INFAC- Annual Review on the Retail Finance Industry, March 2005, Businessworld - The Marketing Whitebook, 2005, CRIS INFAC, Two Wheeler Finance Industry, July 2006

Business Overview We are one of Indias leading retail finance companies. We are primarily engaged in providing finance for BALs two and three wheeler vehicles, consumer durables, personal computers and consumer loans. For fiscal 2005 our disbursements for two and three wheeler vehicles, consumer durables, personal computers and consumer loans comprised 56%, 28%, 11% and 5% of our total disbursements respectively. For fiscal 2006 our disbursements for two and three wheeler vehicles, consumer durables, personal computers and consumer loans comprised 60%, 24%, 13% and 3% of our total disbursements respectively. For the six months period ended September 30, 2006 our disbursements for two and three wheeler vehicles, consumer durables, personal computers and consumer loans comprised 59%, 22%, 17% and 2% of our total disbursements respectively. As of March 31, 2006 and September 30, 2006 we had approximately 3.44 million and 3.93 million individuals respectively as customers across India. Bajaj Auto Limited (BAL), which is our single largest shareholder, is one of Indias leading two wheeler manufacturers. In fiscal 2005 we funded 17.72% of BALs two wheeler sales in India other than exports. For fiscal 2006 we funded 16.79% of BALs two wheeler sales in India other than exports. We currently operate in 82% of BALs dealerships. As part of our strategy for two wheelers, we have focussed on financing BALs two wheelers. We will continue to derive significant fiscal and operational benefits by leveraging our relationship with BAL. We were originally incorporated as a private limited company on March 25, 1987 after which we became a deemed public company by virtue of section 43 A of the Companies Act, 1956 with effect from October 20, 1987. We are currently registered as a non banking finance company (NBFC) in terms of Section 45 IA of the Reserve Bank of India Act, 1934. We commenced our operations by providing finance mainly for two wheelers through our first branch in Hyderabad. As of September 30, 2006 we have a presence in 20 states across the country with a network of 108 branch offices, 270 satellite locations, 47 direct marketing / selling agents. Notwithstanding our pace of growth, we have maintained a strong balance sheet and a low cost of funds. As of March 31, 2006 and September 30, 2006, net non performing assets constituted 2.31% and 3.07% of our receivables respectively. Our average interest cost of borrowed funds excluding equity for fiscal 2006 and for the six month period ended September 30, 2006 (annualised) was 6.06% and 6.96% respectively, which we believe provides us with a competitive advantage. From fiscal 2005 to fiscal 2006 our total disbursements increased by 39%. Out of the total disbursements from fiscal 2005 to fiscal 2006, our disbursals for two wheelers increased by 50% from Rs. 7,816 million to Rs. 11,722 million, and consumer durables increased by 16% from Rs. 4,004 million to Rs. 4,634 million. 2

BAJAJ AUTO FINANCE LIMITED Competitive Strengths We believe that we benefit from certain competitive strengths that have enabled us to achieve high growth and profitability: We leverage our relationship with our Promoter: Bajaj Auto Limited, which is our single largest shareholder and one of our Promoters, is one of Indias leading two wheeler manufacturers. In fiscal 2005, we funded 17.72% of BALs two wheeler sales in India other than exports. For fiscal 2006 we funded 16.79% of BALs two wheeler sales in India other than exports. As of September 30, 2006 we operate in 82% of BALs dealerships in India. As part of our strategy we have focussed on financing BALs two and three wheeler vehicles. We use our Promoters dealership channels for lending to their clients. We derive financial support from BAL in the form of credit lines. As on June 30, 2005, we had access to facilities for Rs. 2.5 billion for two-wheeler vehicles financed under special schemes from BAL. As of the date of this Letter of Offer, BAL holds 6,597,060 shares in the Company representing 31.42% of the total paid up equity share capital of the Company. In January 2006, BAL invested Rs. 534.60 million in our Company by way of subscription to Equity Shares and warrants convertible into Equity Shares issued on preferential basis. Pan India distribution network: As of September 30, 2006, we have a presence in 20 states across the country with a network of 108 branch offices, 270 independent satellite locations, 35 direct marketing agents and 12 direct selling agents. We have spread our branches across urban, semi urban and rural areas. We believe that the spread of our branches and non-branch locations allows us to reach out to our target customers. 66 of our branch locations are located in the semi-urban and rural areas, which in our view are under-penetrated by our competitors. Low cost of funds: For fiscal 2005 and 2006, our average interest cost of borrowed funds was 5.72% and 6.06% respectively. Our annualised interest cost on borrowed funds for the six month period ended September 30, 2006 is 6.96%. We believe that our balance sheet supported by sound rating has enabled us to raise funds at competitive rates. We have obtained a credit rating FAAA for our public deposits and P1+ for our commercial paper. In addition CRISIL has assigned a rating of AA+ (Stable) for Rs. 1,000 million and for Rs. 3,500 million of Non Convertible Debentures. ICRA has assigned a rating of LAA+, for our Non Convertible Debentures amounting to Rs. 3,500 million. The rating indicates that the prospect of timely servicing of the interest and principal as per terms is the best. Low operating costs: Our operating costs for fiscal 2005, fiscal 2006 and the six month period ended September 30, 2006 aggregated to Rs. 667.29 million, Rs. 1,214.11 million and Rs. 852.35 million respectively. This constituted 39.47%, 50.01% and 57.01% of our total income for the respective periods. This has been achieved primarily on account of our low staff cost, outsourcing of non-core activities like credit and asset verification, business sourcing, seizures, sales and data entry. Strong capital adequacy: As of March 31, 2006 and September 30, 2006, our capital adequacy ratio was 28.12% and 24.03% respectively as compared to the RBI requirements for NBFCs of 12%. This capitalisation level in relation to our asset size would enable us to substantially grow our business through leveraging our capital strength.

Business strategy Consolidate on BALs two and three wheeler vehicle financing: In fiscal 2005 we funded 17.72% of BALs two wheeler sales in India other than exports. In fiscal 2006 we funded 16.79% of BALs two wheeler sales in India other than exports. We currently operate in 82% of BALs dealerships. We intend to increase our geographic coverage by increasing our presence in more of BALs dealerships. We have initiated new promotional schemes to attract more customers to add to our customer base. We have also provided for customer convenience by introducing non conventional recovery systems such as using post offices as recovery points. Expansion into semi-urban and rural field: We believe that there is a potential for us to grow in the rural and the semi-urban market as there are few players in those markets. Further there is a physical 3

BAJAJ AUTO FINANCE LIMITED need for transportation and lack of infrastructure in these markets. As of September 30, 2006, we have 66 branches in the semi-urban and the rural markets which comprise 61% of our total branches. We currently have plans to establish an additional 19 branches covering these markets. By focusing on the semi-urban and the rural markets we intend to focus on customers from the agriculture segment which includes farmers and persons dependant on agriculture as a source of livelihood and the transitional segment which includes shop keepers and persons not dependent on agriculture for their livelihood. Customer acquisition through cross selling initiatives focussing on financing consumer durables and personal computers: We have been able to increase our customer base over the years through sustained efforts and focus on the two wheeler financing market. As a result of the same, we currently have on hand a data base with the social demographic and credit details of a large number of individuals. As on March 31, 2006 our customer base stood at 3.44 million. The customers that we seek to attract through cross selling are essentially the same customers we already have access to through our two wheeler financing initiatives in the past. This offers us an opportunity to cross sell our other financing schemes for other products to the same customer. We believe that focussing on financing alternative products like consumer durables and personal computers would help in de-risking our business portfolio. Further, we believe financing these products offers us better margins than two and three wheeler vehicle finance. Our margins for consumer durables, personal computers and personal vary from 22% to 32% as opposed to 15% to 22% for two and three wheelers. As of fiscal 2005 and fiscal 2006 our disbursements for consumer durables were 28% and 24% respectively. As of fiscal 2005 and fiscal 2006 our disbursements for personal computers were 11% and 13% respectively. Technology: As we intend to expand our retail products and geographic reach, we believe it is necessary for us to strengthen our technology platform to support our growth and improve our credit analysis tools. This would enable us to create a comprehensive knowledge base, customer profile and customer support systems, which in turn would assist us in our cross selling initiatives. Besides, we believe would also reduce our operational and processing time and thereby improve our operating efficiencies.

BAJAJ AUTO FINANCE LIMITED

THE ISSUE
Equity Shares issued by the Company NCDs with detachable Warrants issued by the Company Rights Entitlement 12,596,076 Equity Shares 5,248,365 NCDs with detachable Warrants 6 Equity Shares for every 10 Equity Shares held on the Record Date and one NCD with detachable Warrant for every 4 Equity Shares held on the Record Date November 20, 2006 Rs. 325 per Equity Share Rs. 500 per NCD with detachable Warrant 6 % p.a. payable annually upto the redemption of the NCD Rs. 500 per Warrant Period commencing after 12 months from the Date of Allotment to the end of 35 months from the date of Allotment 20,993,460 Equity Shares 41,844,441 Equity Shares For more information, see Terms of Issue on page 154 of this Letter of Offer.

Record Date Issue Price per Equity Share Face value per NCD with detachable Warrant Interest Warrant Exercise Price Warrant Exercise Period Equity Shares outstanding prior to the Issue Equity Shares outstanding after the Issue* Terms of the Issue

* assuming full conversion of outstanding warrants issued to BAL on a preferential basis and warrants issued under this Issue

BAJAJ AUTO FINANCE LIMITED SUMMARY FINANCIAL AND OPERATIONAL INFORMATION The following tables set forth our selected historical financial information derived from our restated and audited financial statements for the fiscal years ended March 31, 2002, 2003, 2004, 2005 and 2006 and the six month period ended September 30, 2006 all prepared in accordance with Indian GAAP, the Companies Act and SEBI DIP Guidelines and restated as described in the Report of the Auditor on Financial Information of M/s. Dalal & Shah included in the section titled Report of the Auditor on Financial Information on page 87 of this Letter of Offer, and this table should be read in conjunction with the financial statements mentioned therein and the notes thereto. Selected Financial Information of Bajaj Auto Finance Limited Statement of Assets and Liabilites (As Restated) (Rs. million)
As of A. Fixed assets: Gross Block Less: Depreciation Net Block Lease Adjustment Account Total B. Investments: C. Deferred tax asset / (liability), net 540.37 485.72 54.65 (2.68) 51.97 499.43 551.99 515.64 36.35 1.29 37.64 276.62 372.53 346.40 26.13 10.73 36.86 295.93 284.52 262.16 22.36 0.15 22.51 231.33 288.09 255.93 32.16 0.09 32.25 269.03 300.83 262.92 37.91 0.04 37.95 272.67 31.03.2002 31.03.2003 31.03.2004 31.03.2005 31.03.2006 30.09.2006

1.70

9.76

(6.38)

(44.62)

11.46

97.31

D. Current assets, Loans and Advances: Stock on hire purchase finance Lease debtors Cash and Bank Balances Other Current assets Loans and advances Total E. Liabilities and Provisions: Loan Funds Secured Unsecured Total 165.57 2,084.34 2,249.91 636.16 2,003.12 2,639.28 1,908.09 1,530.55 3,438.64 3,141.68 3,661.54 6,803.22 8,253.21 1,934.41 10,187.62 7,606.68 5,401.96 13,008.64 5,389.23 7.87 152.76 16.56 897.38 6,463.80 6,321.34 0.07 171.10 32.80 955.21 7,480.52 7,268.80 0.03 247.77 29.38 1,506.75 9,052.73 11,223.47 0.01 407.56 45.39 2,258.94 13,935.37 18,554.31 656.35 73.30 2,595.20 21,879.16 22,295.66 1,011.86 143.69 2,600.72 26,051.93

BAJAJ AUTO FINANCE LIMITED

As of 31.03.2002 31.03.2003 31.03.2004 31.03.2005 31.03.2006 30.09.2006

F. Current liabilities and provisions Current liabilities Provisions Total G. Net Worth Represented by: 1. Shareholders funds Share capital Reserve and Surplus Net Worth 164.90 1,714.03 1,878.93 164.90 1,902.52 2,067.42 164.90 2,153.00 2,317.90 164.90 2,426.52 2,591.42 209.94 4,617.04 4,826.98 209.94 4,723.90 4,933.84 2,004.84 883.22 2,888.06 1,878.93 2,144.05 953.79 3,097.84 2,067.42 2,476.52 1,146.08 3,622.60 2,317.90 3,599.45 1,150.50 4,749.95 2,,91.42 5,716.03 1,338.00 7,054.03 4,826.98 7,018.56 1,375.55 8,394.11 4,933.84

Statement of Profits and Losses (As Restated) (Rs. million)

For the year ended INCOME: Hire Purchase Finance Business: Financing charges Administration charges

31.03.2002

31.03.2003

31.03.2004

31.03.2005

31.03.2006

01.04.2006 to 30.09.2006

532.59 351.91 884.50

547.30 387.70 935.00

551.54 487.54 1,039.08

695.31 630.96 1,326.27

1,102.34 774.21 1,876.55

754.62 491.91 1,246.53

Leasing Business: Lease Rentals Lease Equalisation 56.06 (20.78) 35.28 Discount on bills of exchange discounted Interest on consumer loans Other income Total EXPENDITURE: Other expenses Interest and finance charges 298.87 269.02 567.89 443.54 256.35 699.89
7

9.23 3.97 13.20

7.99 9.43 17.42

47.88 (10.57) 37.31

86.20 (0.06) 86.14

18.76 (0.04) 18.72

7.53 0.00 180.43 1,107.74

3.50 3.26 199.69 1,154.65

0.02 23.19 221.38 1,301.09

89.68 237.53 1,690.79

138.43 326.24 2,427.37

59.44 168.40 1,493.09

483.36 256.80 740.16

667.29 348.66 1,015.95

1,214.12 646.44 1,860.57

852.35 468.44 1,320.79

BAJAJ AUTO FINANCE LIMITED

Profit before depreciation Depreciation Profit before tax and Extraordinary items Provision for taxation: Current tax (including Fringe Benefit Tax) Deferred Tax expenses / (credit)

539.85 47.26

454.76 30.44

560.93 18.75

674.84 20.06

566.80 17.34

172.30 6.99

492.59

424.32

542.18

654.78

549.46

165.31

172.50 (17.99) 154.51

160.17 (8.06) 152.11

163.94 16.14 180.08

201.99 38.24 240.23

226.00 (53.39) 172.61

144.30 (85.85) 58.45

Profit before extraordinary items

338.08

272.21

362.10

414.55

376.85

106.86

Net profit after extraordinary items Appropriations Transfer to RBI Reserve Fund Transfer to General Reserve Proposed dividend Provision for dividend tax on dividend Surplus carried to Balance Sheet

338.08

272.21

362.10

414.55

376.85

106.86

68.00 195.87 74.21 0.00 -

57.00 131.49 74.21 9.51 -

77.50 172.98 98.94 12.68 -

112.00 161.52 123.68 17.35 -

42.50 238.60 83.97 11.78 -

21.50 85.36

BAJAJ AUTO FINANCE LIMITED Key financial ratios

As on Credit / Deposit ratio (%) Average working funds (AWF) (Rs. million) Interest spread / AWF (%) Net profit (AWF) (%) Operating expenses / AWF (%) Yield on advances (%) Yield on investment (%) Yield on balance with RBI and inter bank lending Cost of deposits (%) Cost of borrowings (%) Business per employee (Rs. in million) Operating profit per employee (Rs. million) March 31, 2002 2,613.55 6,872.50 12.20 4.92 4.35 17.80 7.00 NA 12.09 9.15 13.23 1.70 March 31, 2003 1,506.20 7,410.72 12.12 3.67 5.99 16.20 6.42 NA 11.57 8.02 11.19 1.01 March 31, 2004 2,038.23 8,595.03 12.15 4.21 5.62 15.33 8.67 NA 9.30 5.79 11.65 0.97 March 31, 2005 3,776.80 11,787.37 11.39 3.52 5.66 14.38 6.79 NA 9.16 5.13 13.00 0.95 March 31, 2006 14,747.58 18,190.56 9.79 2.07 6.67 13.01 6.67 NA 6.30 6.28 12.44 0.77 September 30, 2006 24,417.79 24,325.88 4.21 0.44 3.50 6.16 2.27 NA 6.26 6.96 5.51 0.31

Business per branch (Rs. million) Operating profit per branch (Rs. million) Average balances of interest earning assets (Rs. million) Interest income (Rs. million) Average interest rate (%) Average interest bearing liabilities (Rs. million) Interest rate Interest expenses Average interest earning assets to average interest bearing liabilities (no. of times) Net interest income (Rs. million) Net interest margin (%) Gross yield (%) Yield spread (%) Return on average assets (%) Average share capital and reserves to average total assets (no. of times)

136.87 17.58 5,978.93 838.72 14.03 2,469.86 9.41 269.02

137.57 12.48 6,399.60 898.30 14.04 2,444.59 8.54 256.35

162.86 13.63 7,436.73 1,044.29 14.04 3,038.96 6.31 256.80

156.26 11.37 10,456.34 1,342.13 12.84 5,120.93 5.44 348.66

191.62 11.89 16,457.80 1,780.91 10.82 8495.42 6.28 646.44

106.19 5.99 21,797.79 1,024.65 4.70 11598.13 6.96 468.44

2.42 569.70 9.53 16.12 12.20 4.92

2.62 641.95 10.03 15.58 12.12 3.67

2.45 787.49 10.59 15.14 12.15 4.21

2.04 993.47 9.50 14.34 11.39 3.52

1.94 1134.47 6.89 13.34 9.79 2.07

1.88 556.21 2.55 6.14 4.21 0.44

0.26

0.27

0.26

0.21

0.20

0.20

BAJAJ AUTO FINANCE LIMITED

GENERAL INFORMATION
Dear Shareholder(s), Pursuant to the resolutions passed by the Board of Directors of the Company at its meetings held on December 10, 2005, January 12, 2006 and July 14, 2006, the resolution passed by the Preferential/ Rights Issue Committee of Directors at its meeting held on November 2, 2006 and the special resolution passed by the shareholders at their extraordinary general meeting held on January 12, 2006 it has been decided to make the following offer to the Equity Shareholders of the Company, with a right to renounce: SIMULTANEOUS BUT UNLINKED ISSUE OF 12,596,076 EQUITY SHARES OF Rs. 10 EACH AT A PREMIUM OF RS. 315 PER EQUITY SHARE AGGREGATING RS. 4,093.72 MILLION TO THE EQUITY SHAREHOLDERS ON RIGHTS BASIS IN THE RATIO OF 6 EQUITY SHARES FOR EVERY 10 EQUITY SHARES HELD ON THE RECORD DATE i.e. NOVEMBER 20, 2006 AND 5,248,365 NON-CONVERTIBLE DEBENTURES (NCDs) OF RS. 500 EACH AGGREGATING RS. 2,624.18 MILLION WITH DETACHABLE WARRANTS IN THE RATIO OF 1 NCD WITH DETACHABLE WARRANT FOR EVERY 4 EQUITY SHARES HELD ON THE RECORD DATE (ISSUE). THE ISSUE PRICE FOR EQUITY SHARES IS 32.5 TIMES OF THE FACE VALUE OF THE EQUITY SHARE. TOTAL ISSUE OF EQUITY SHARES AND NCDs WITH DETACHABLE WARRANTS PRIOR TO CONVERSION IS RS. 6,717.90 MILLION AND AFTER ASSUMING FULL CONVERSION OF DETACHABLE WARRANTS INTO EQUITY SHARES DURING THE WARRANT CONVERSION PERIOD AT WARRANT EXERCISE PRICE WOULD AGGREGATE Rs. 9,342.09 MILLION. The RBI has, vide its letter dated June 8, 2006, permitted the Company to issue 5,248,365 NCDs on a rights basis to the existing shareholders of the Company, subject to the certain conditions specified therein. Registered Office of the Company Bajaj Auto Finance Limited C/o. Bajaj Auto Limited, Mumbai-Pune Road, Akurdi, Pune 411 035. Registration number: 11-42961 The Company is registered at the Registrar of Companies, State of Maharashtra, located at PMT Commercial Building, Deccan Gymkhana, Pune 411 004. Board of Directors
Name and Designation Rahul Bajaj Chairman Age 68 Address Bajaj Vihar Colony, Mumbai-Pune Road, Akurdi, Pune 411 035. Bungalow No. 3, Bajaj Vihar Colony, Mumbai-Pune Road, Akurdi, Pune 411 035. Bajaj Vihar Colony, Mumbai-Pune Road, Akurdi, Pune 411 035. Bajaj Vihar Colony Mumbai-Pune Road, Akurdi, Pune 411 035.

Madhur Bajaj Director

54

Rajiv Bajaj Director

39

Sanjiv Bajaj Director

37

10

BAJAJ AUTO FINANCE LIMITED

DS Mehta Director 70 301/302, Gora Gandhi Apts, 3, Laburnum Road, Gamdevi, Mumbai 400 007. Flat No. 801, Surajprakash Bldg., 86, Shankar Ghanekar Marg, Mumbai 400 025. C/o Gangtok Auto W orks Pvt. Ltd., National Highway, Gangtok 737 001. 49, Vihar Apartments, Ramdaspeth, Nagpur 440 010. Brij Kutir, 17 th Floor, Rungta Lane, Off Nepean Sea Road, Mumbai 400 026.

Ranjan Sanghi Independent Director

62

Rajendra Lakhotia Independent Director Naresh Patni Independent Director Dipak Poddar Managing Director

56

47

63

For further details of our Chairman, Managing Director and directors, see Our Management on page 56 of this Letter of Offer. Company Secretary and Compliance Officer Suhas Patwardhan Bajaj Auto Finance Limited C/o. Bajaj Auto Limited Mumbai-Pune Road, Akurdi Pune 411 035. Tel.: +91 20 27406912 Fax: +91 20 27484486 Email: baflrights@bajajfinance.in Investors may contact the Compliance Officer for any pre-Issue / post-Issue related matter. Lead Manager to the Issue JM Morgan Stanley Private Limited 141, Maker Chambers III, Nariman Point, Mumbai 400 021. Contact Person: Purti Vijaywargiya Tel: +91 22 6630 3030 Fax: +91 22 2204 7185 Email: baflrightsissue@jmmorganstanley.com Legal Advisor to the Issue Amarchand & Mangaldas & Suresh A. Shroff & Co. Peninsula Chambers Peninsula Corporate Park Ganpatrao Kadam Marg Lower Parel Mumbai 400 013. Tel: +91 22 6660 4455 Fax: +91 22 2496 3666

11

BAJAJ AUTO FINANCE LIMITED Auditors of the Company M/s. Dalal & Shah Chartered Accountants East & West Insurance Building, 2nd Floor 49/55, Bombay Samachar Marg Fort, Mumbai 400 023. Tel: +91-22 22662110, 22660115 Fax: +91- 22 22661503 Bankers to the Company Central Bank of India Corporate Finance Branch I Floor, MMO Building Fort, Mumbai 400 023. State Bank of India Industrial Finance Branch The Arcade II Floor, World Trade Centre Cuffe Parade, Colaba Mumbai 400 005. Bankers to the Issue HDFC Bank Limited 4th Floor Millennium Tower Bhandarkar Road Shivajinagar Pune 411 004. Registrar to the Issue Intime Spectrum Registry Limited C-13, Pannalal Silk Mills Compound LBS Marg Bhandup (W) Mumbai 400 078. Contact Person: Mr. Vishwas Attavar Tel: + 91 22 25960320 (9 lines) Fax: + 91 22 25960329 Email:bajajaf-rights@intimespectrum.com Credit Rating The issue of Equity Shares under this Issue does not require credit rating. However, the issue of the NCDs under this Issue requires credit rating. The details of the credit rating of the NCDs with Detachable Warrants are as under: CRISIL: AA+/ Stable (pronounced Double A plus with stable outlook) indicating high degree of safety with regard to timely payment of interest and principal on the instrument for Rs. 3,500 million. ICRA: LAA+ (pronounced L double A plus) indicating high-credit-quality rating for Rs. 3,500 million.

12

BAJAJ AUTO FINANCE LIMITED The details of the credit ratings for various debt programmes of the Company for the last three years and the current year are as under:

Years\Instruments 2003-04 2004-05 2005-06

Fixed Deposit FAAA FAAA/Stable FAAA/Stable

Commercial Paper P1+ (Rs. 1,500 million) P1+ (Rs. 2,000 million) P1+ (Rs. 3,000 million)

Non-convertible Debentures (Secured) AA+/Stable (Rs.1,000 million) AA+/Stable (Rs.1,000 million) Dual rating CRISIL:AA+/Stable (Rs.3,500 million) ICRA:LAA+ (Rs. 3,500 million) AA+/ Stable (Rs.1,000 million) Dual rating CRISIL:AA+/ Stable (Rs. 3,500 million) ICRA:LAA+ (Rs. 3,500 million)

2006-07

FAAA/Stable

P1+ (Rs. 4,000 million)

Debenture Trustee IL&FS Trust Company Limited Plot C-22, G Block, Bandra Kurla Complex Bandra East Mumbai 400 051. Contact Person: Sujata Achrekar Tel: +91 22 26533333 Fax: +91 22 26533297 Email: sujata.achrekar@ilfsindia.com Monitoring Agency SICOM Limited Nirmal, 1st Floor Nariman Point Mumbai 400 021 Contact Person: Mr. Vijay Paradkar Tel: +91 22 66572700 Fax: +91 22 22825781 Email: vparadkar@sicomindia.com

13

BAJAJ AUTO FINANCE LIMITED

CAPITAL STRUCTURE
Aggregate nominal value (in Rs. Million) Authorized share capital 50,000,000 Equity Shares of Rs. 10 each Issued and subscribed capital Equity Shares of Rs. 10 each (Including 1000 forfeited 20,994,460 Equity Shares) Paid up capital 20,993,460 Equity Shares of Rs. 10 each Aggregate value at Issue Price (in Rs. million)

500

209.94

209.93

Present Issue being offered to the Equity Shareholders through the Letter of Offer Equity Shares of Rs. 10 each at a premium of Rs. 315 i.e. 125.96 12,596,076 at a price of Rs. 325 Paid up capital after the Issue After allotment of Equity Shares under the Issue Equity Shares of Rs.10 each 33,589,536 Assuming full conversion of warrants issued to BAL Equity Shares of Rs. 10 each 36,596,076 Assuming full conversion of warrants issued to BAL and warrants issued under this Issue Equity Shares of Rs. 10 each 41,844,441 Share Premium Account Existing share premium account Share premium account after the Issue Share premium account after the Issue and assuming full conversion of warrants issued to BAL Share premium account after the Issue and assuming full conversion of warrants issued to BAL and warrants issued under this Issue

4,093.72

335.90 365.96

418.44

2,408.13

2,408.13 6,375.89 7,578.51 10,150.21

14

BAJAJ AUTO FINANCE LIMITED Notes to Capital Structure 1. Build up of Equity Share Capital
Date of allotment March 25, 1987 No. of Equity Shares Allotted 100 Face Value (Rs.) 10 Issue Price (Rs.) 10 Cumulative paid-up capital (Rs.) 1,000

Consideration

Remarks Initial subscribers to the Memorandum of Association Allotted to Promoters, BAL Dealers, Directors and their relatives Issue of Rights Issue of Rights Allotted to Employees of the Company Public Issue of Equity Shares (including Firm Allotment to Promoters) Forfeiture of 1000 partly paid up shares for non payment of allotment money Preferential Allotment to BAL Preferential Allotment to Copa Cabana, El Dorado Holdings II Limited, Tiger Global LP, Tiger Global Limited, Tiger Global II LP, Blue Ridge Limited Partnership and Blue Ridge Offshore Master Limited Partnership.

Cash

June 10, 1987 October 20, 1987 May 15, 1990 September 27, 1990 May 28, 1994

999,900

10

10

10,000,000

Cash

4,000,000 5,000,000 3,000

10 10 10

10 10 10

50,000,000 100,000,000 100,030,000

Cash Cash Cash

6,488,200

10

90

164,912,000

Cash

January 13, 1998 January 18, 2006

164,902,000

1,003,260

10

410

174,934,600

Cash

January 18, 2006

3,500,000

10

450

209,934,600

Cash

Our Company has not issued shares for consideration other than cash. We have not issued any shares out of revaluation reserves.

15

BAJAJ AUTO FINANCE LIMITED 2. Current shareholding pattern of the Company

Shareholders

No. of Equity Shares held pre-Issue

% of preIssue capital

No. of Equity Shares post Issue

% of post Issue capital assuming allotment of all Equity Shares offered* 31.42 10.08

Promoters Bajaj Auto Limited Bajaj Auto Holdings Limited

6,597,060 2,116,900

31.42 10.08

12,204,561 3,916,265

Promoter Group (in terms of Explanation II to Clause 6.8.3.2 of the SEBI DIP Guidelines.) Jamnalal Sons Private Limited 284,800 1.36 526,880 Maharashtra Scooters 1,024,200 4.88 1,894,770 Limited** Total Promoter and Promoter Group Share Holding Public Directors and their Relatives Banks, Financial Institutions & Insurance Cos. UTI and Mutual Funds FII Foreign Corporate Bodies OCBs NRIs Public Total Public Shareholding Total
* **

1.36 4.88

10,022,960

47.74

18,542,476

47.74

335,129

1.60

619,989

1.60

700 11,445 3,253,483 2,465,000 700 97,596 4,806,447 10,970,500 20,993,460

0.00 0.05 15.50 11.74 0.00 0.46 22.89 52.26 100.00

1,295 21,173 6,018,944 4,560,250 1,295 180,553 8,891,927 20,295,425 38,837,901

0.00 0.05 15.50 11.74 0.00 0.46 22.89 52.26 100.00

Assuming all shareholders apply for and are allotted Equity Shares and assuming full conversion of Warrants issued in this Issue into Equity Shares during the Warrant Conversion Period. We understand from BAL that they may acquire a further 27% shareholding in Maharashtra Scooters Limited, which presently holds 4.88% in us. If the said transaction is consummated, Maharashtra Scooters Limited would become a subsidiary of BAL.

*** Out of these 1,003,260 shares held by Bajaj Auto Ltd. issued under the Preferential Issue have been locked in.

3.

The Promoters have confirmed that they along with the companies controlled by them (together referred to as Promoters in this clause) intend to subscribe to the full extent of their entitlement in the Issue. The Promoters reserve their right to subscribe to their entitlement in this Issue, either by themselves or a combination of entities controlled by them, including by subscribing for renunciation if any made within the promoter group to another person forming part of the promoter group. The Promoter and the

16

BAJAJ AUTO FINANCE LIMITED promoter group will subscribe to unsubscribed portion such that at least 90% of the Issue is subscribed. This acquisition of additional Equity Shares, if allotted to the Promoter shall be in terms of proviso to regulation 3(1)(b)(ii) of the Takeover Code and will be exempt from the applicability of regulation 11 and 12 of Takeover Code. This disclosure is made in terms of the requirement of Regulation 3(1)(b) of the Takeover Code. Further this acquisition will not result in change of control of management of the Company. As such, other than meeting the requirements indicated in the section on Objects of the Issue on page 20 of this Letter of Offer, there is no other intention/purpose for this Issue, including any intention to delist the Company, even if, as a result of allotments to the Promoters, in this Issue, the Promoters shareholding in the Company exceeds their current shareholding. The Promoter shall subscribe to such unsubscribed portion as per the relevant provisions of the law. Allotment to the Promoter of any unsubscribed portion, over and above their entitlement shall be done in compliance with the Listing Agreement and other applicable laws prevailing at that time relating to continuous listing requirements. Our Promoter has provided the following undertaking, in terms of the SEBI (Delisting of Securities) Guidelines, 2003: We hereby undertake that, in case the Rights Issue of Bajaj Auto Finance Limited is completed with the Promoters subscribing to equity shares over and above their entitlement and as a result, if the public shareholding in the Company after the Rights Issue falls below the permissible minimum level as specified in the listing condition or listing agreement, we will either individually or jointly with the promoter group make an offer for sale of our holdings so that the public shareholding is raised to the permissible minimum level within a period of three months from the date of allotment in the proposed Issue, as per the requirements of Clause 17.1 and 17.2 of SEBI (Delisting of Securities) Guidelines, 2003 or as per any amendment thereto or any other period as may be directed by SEBI or any appropriate authority. 4. Details of the shareholding of the promoter group and the directors of the promoter as on November 24, 2006

Name of entities No. of Shares Promoter Bajaj Auto Limited 6,597,060 Bajaj Auto Holdings Limited 2,116,900 Total (A) Promoter Group (in terms of Explanation II to Clause 6.8.3.2 of the SEBI DIP Guidelines.) Jamnalal Sons Private Limited 284,800 Maharashtra Scooters Limited 1,024,200 Total (B) Total Promoter Group Shareholding (A + B) Directors of the Promoters Rahul Bajaj 10,000 Madhur Bajaj 10,000 Total (C) Total Shareholding of the Promoter Group and directors of the Promoters (A + B + C)

8,713,960

1,309,000 10,022,960

20,000 10,042,960

5.

There are no transactions in Equity Shares by the Promoters and the promoter group during the last six months

17

BAJAJ AUTO FINANCE LIMITED 6. a. Top ten shareholders Top Ten shareholders as of November 24, 2006, the date of filing the Letter of Offer with SEBI
Name of the shareholders Bajaj Auto Limited* Bajaj Auto Holdings Limited Copa Cabana El Dorado Holdings II Limited Maharashtra Scooters Limited Premier Investment Fund Limited Tiger Global LP Vijay Bhargava Blue Ridge Limited Partnership El Dorado Holdings I Limited Total
*

Total Shares 6,597,060 2,116,900 1,840,810 1,035,000 1,024,200 576,316 546,331 484,876 443,000 436,000 15,100,493

Percentage of pre issue capital 31.42 10.08 8.77 4.93 4.88 2.75 2.60 2.31 2.11 2.08 71.93

In addition, Bajaj Auto Limited holds convertible warrants which would entitle it to Equity Shares as under:

Date of issue January 18, 2006

b.

No. of warrants 3,006,540

Entitlement to Equity Shares 3,006,540 (at a ratio of one fully paid Equity Share for each warrant)

Conversion price Rs. 410 per Equity Share

Conversion period Optionally convertible within 18 months from the date of issue

Top Ten shareholders as of November 17, 2006, ten days prior to the date of filing the Letter of Offer with SEBI
Name of the shareholders Total Shares 6,597,060 2,116,900 1,840,810 1,035,000 1,024,200 551,316 546,331 484,876 443,000 436,000 15,075,493 Percentage of pre issue capital 31.42 10.08 8.77 4.93 4.88 2.63 2.60 2.31 2.11 2.08 71.81

Bajaj Auto Limited* Bajaj Auto Holdings Limited Copa Cabana El Dorado Holdings II Limited Maharashtra Scooters Limited Premier Investment Fund Limited Tiger Global LP Vijay Bhargava Blue Ridge Limited Partnership El Dorado Holdings I Limited Total

18

BAJAJ AUTO FINANCE LIMITED c. Top Ten shareholders as of two years prior to the date of filing the Letter of Offer with SEBI
Name of the shareholders Bajaj Auto Limited Bajaj Auto Holdings Limited Maharashtra Scooters Limited Jamnalal Sons Private Limited Suvijay Exports Limited Rohit Poddar Kamala Jain Sandhini Poddar Bajaj Auto Employees W elfare Fund No. 6 Tata Investment Corporation Limited Total Total Shares 5,493,800 2,116,900 1,024,200 284,800 259,709 165,000 122,999 120,000 116,600 109,722 9,813,730 Percentage of pre issue capital 33.32 12.84 6.21 1.73 1.57 1.00 0.75 0.73 0.71 0.67 59.51

The Company has not made an initial public offering of its Equity Shares in the immediately preceding two years from the date of filing of this Letter of Offer. 7. 8. 9. 10. 11. Total number of members of the Company as of November 24, 2006 was 12,362. The present Issue being a rights Issue, as per extant SEBI guidelines, the requirement of promoters contribution and lock-in are not applicable. The Company has not issued any Equity Shares or granted any options under any scheme of employees stock option or employees stock purchase. The Company has not availed of bridge loans to be repaid from the proceeds of the Issue for incurring expenditure on the Objects of the Issue. The Promoters or Directors of the Company or Lead Manager of the Issue have not entered into any buy-back, standby or similar arrangements for any of the securities being issued through this Letter of Offer, except to the extent the arrangements made by the Lead Manager for the Khokha Buy Back Scheme. For details of the Khokha Buy Back Scheme, please refer to the section titled Terms of the Issue at page 154 of this Letter of Offer. The terms of issue to Non-Resident Equity Shareholders/Applicants have been presented under the section Terms of the Issue on page 154 of this Letter of Offer. At any given time, there shall be only one denomination of the Equity Shares of the Company. Except the warrants issued to BAL, on a preferential basis, the Equity Shareholders of the Company do not hold any warrant, option or convertible loan or debenture, which would entitle them to acquire further shares in the Company. Except to the extent of the potential conversion of warrants issued to BAL on a preferential basis, no further issue of capital by way of issue of bonus shares, preferential allotment, rights issue or public issue or in any other manner which will affect the equity capital of the Company, shall be made during the period commencing from the filing of the Draft Letter of Offer with the SEBI and the date on which the Equity Shares issued under the Letter of Offer are listed or application moneys are refunded on account of the failure of the Issue. Further, presently the Company does not have any intention to alter the equity capital structure by way of split/ consolidation of the denomination of the shares on a preferential basis or issue of bonus or rights or Public issue of shares or any other securities within a period of six months from the date of opening of the Issue. The Issue will remain open for 30 days. However, the Board will have the right to extend the Issue period as it may determine from time to time but not exceeding 60 days from the Issue Opening Date.

12. 13.

14.

15.

19

BAJAJ AUTO FINANCE LIMITED OBJECTS OF THE ISSUE The Objects of the Issue are to strengthen the capital base of the Company, to augment the long term resources of the Company to leverage our growing business, to redeem the existing short term working capital loan, so that the same is available for future operations of the Company, for investment in new information technology systems and to meet the expenses of the Issue. Requirement and Sources of Funds (In Rs. million)
Requirement of Funds Strengthen our capital base, augment our long term resources to leverage our growing business and pre-pay certain of our short term working capital loans Investment in Information Technology Systems, office infrastructure and for other general corporate purposes Estimated Issue expenses TOTAL

6,182.90 500.00 35.00 6,717.90 (In Rs. million)

Sources of Funds Proceeds from the simultaneous but unlinked Issue Equity Shares NCDs with Warrants TOTAL

4,093.72 2,624.18 6,717.90

The main objects and the objects incidental or ancillary to our main object set out in our Memorandum of Association enables us to undertake our existing activities and the activities for which the funds are being raised by us in the Issue. The fund requirement and deployment is based on internal management estimates and has not been appraised by any bank or financial institution. SICOM Limited along with our Board will monitor the utilization of the proceeds from the Issue. No part of the proceeds of the Issue will be paid by us as consideration to our Promoters, our Directors, key managerial employees or companies promoted by our Promoters, except in the normal course of business. Strengthen our capital base, augment our long term resources to leverage our growing business and prepay certain of our short term working capital loans The RBI, which regulates our business, requires us to maintain a minimum capital to risk weighted assets and off balance sheet items ratio of 12%, at least half of which should consist of Tier I capital. As per our restated financial statements for the six months period ended September 30, 2006 our total capital adequacy ratio was 24.03%. As per our restated financial statements as of March 31, 2006, our total capital adequacy ratio was 28.12%. As per our restated financial statements, our total capital adequacy ratio was 23.42% as of March 31, 2005 compared to 32.73% as of March 31, 2004. Also, as on March 31, 2006 our total debt to equity ratio was 2.11:1. As per our restated financial statements, our total debt to equity ratio was 2.63:1 as of March 31, 2005 compared to 1.48:1 as of March 31, 2004. Thus by infusion of equity share capital and pre-paying certain of our short term working capital loans we would be in a position to expand our business by leveraging our improved balance sheet position. Further, the equity infusion will also enable us to improve our capital adequacy ratios as well as total debt to equity ratios.

20

BAJAJ AUTO FINANCE LIMITED Out of the funds raised from the Issue, we intend to repay and / or pre-pay some of the short term loans or working capital demand loans or commercial papers mentioned below either in full or in part to the extent of Rs. 3,000 million. (Rs. in million)

Date of Availment Rate of Interest % and Loan type Short Term Loan June 06, 2006 7.65 June 15, 2006 7.75 June 19, 2006 7.80 June 29, 2006 7.80 October 17, 2006 7.95 November 20, 2006 7.80 November 19, 2006 7.75 September 30, 2006 7.60 October 03, 2006 7.60 October 06, 2006 7.60 October 23, 2006 7.75 October 26, 2006 7.75 October 30, 2006 7.75 November 01, 2006 7.75 Working Capital Demand Loan September 29, 2006 7.85 October 16, 2006 7.80 November 11, 2006 8.35 November 14, 2006 8.50 November 20, 2006 8.45 Commercial Paper Stand Alone September 01, 2006 September 06, 2006 October 10, 2006 October 12, 2006 October 12, 2006 7.50 7.40 7.38 7.38 7.38 Total

Amount 150 150 130 70 150 200 500 150 300 550 500 350 350 450 105 100 500 400 100 300 300 150 100 150 6,205

Maturity date December 01, 2006 December 12, 2006 December 16, 2006 December 26, 2006 April 16, 2007 May 19, 2007 February 17, 2007 December 31, 2006 January 03, 2007 January 06, 2007 January 23, 2007 January 26, 2007 January 30, 2007 February 01, 2007 December 28, 2006 January 15, 2007 February 10, 2007 February 14, 2007 February 19, 2007 February 28, 2007 March 06, 2007 March 13, 2007 March 13, 2007 March 13, 2007

Borrowed from Bank of America Bank of America Bank of America Bank of America Citi Bank Citi Bank IDBI Bank Syndicate Bank Syndicate Bank Syndicate Bank Syndicate Bank Syndicate Bank Syndicate Bank Syndicate Bank State Bank of India State Bank of India State Bank of India State Bank of India State Bank of India Principal Mutual Fund HSBC Mutual Fund Templeton Mutual Fund Templeton Mutual Fund HSBC Cash Fund

Note: These loans have been taken with roll over option without any prepayment charges/ levies.

Investment in Information Technology Systems and for other general corporate purposes We presently have operations in 108 branch locations in 20 states across India. As we propose to expand our operations by setting up additional branches we would need improved and scalable information technology architecture to support integration and improve the consolidated corporate reporting in a centralised manner. Presently we operate on legacy systems which do not fully support integration of our operations in an automated manner. To upgrade IT systems of the Company, Intellect product suite from the Chennai based Polaris Software Lab has been selected. This software will be implemented at all the present and upcoming branches. We have estimated an aggregate amount of Rs. 500 million for this upgradation, office infrastructure 21

BAJAJ AUTO FINANCE LIMITED and other general corporate purposes. The details for which are set forth in the table below: Particulars Amount in Rs. million Investment in IT Technology Systems General Corporate Purposes Total Cost 200 300 500 Rs. in million Particulars Investment in IT Technology Systems 2006-07 30 2007-08 170

Also, as we propose to expand our operations we would need to spend on general corporate purposes such as setting up of support infrastructure, expenses on setting up new branches / shoppees etc. We have earmarked Rs. 500 million from the proceeds of the Issue for the purpose of investing in our information technology systems and for general corporate purposes. Issue Expenses We have estimated Rs. 35 million for the purpose of meeting the issue expenses. Sl. No. Expenses Incurred Amount (Rs. in million) 11.50 3.70 16.00 3.80 35.00 Percentage of Total Issue Expenses 32.86% 10.57% 45.71% 10.86% 100.00% Percentage of Total Issue Size* 0.17% 0.06% 0.24% 0.06% 0.52%

1. 2. 3. 4.

Lead Management Fees Printing , Mailing and Registrar Expenses Stamp Duty, Auditors, Listing, Filing, Rating and Legal Fees Marketing Expenses and Issue advertisements , Misc. Expenses Total

* Total Issue Size is without considering the warrants conversion Interim use of proceeds The above fund requirements are based on our current business plans. In view of the competitive and dynamic nature of the industry in which we operate, we may have to revise our business plans from time to time and consequently our fund requirements may also change. Our management in accordance with the policies established by the Board will have the flexibility in deploying the proceeds from the Issue. Pending utilization of the proceeds for the purposes described above, the funds would be deployed either towards temporary reduction in the availment under short term working capital facilities and/or in liquid instruments such as bank deposits, units, gilt edged securities and other AAA rated interest bearing securities as may be approved by the Board. Such investment would be at the prevailing commercial rates at the time of the said investment. The net proceeds of the Issue would be used to meet all or any of the uses of funds described above. In case the funds raised in the Issue are lower than our total budgeted requirements, we intend to use internal accruals to finance the shortfall.

22

BAJAJ AUTO FINANCE LIMITED BASIS FOR ISSUE PRICE The investors may also want to peruse the risk factors and our financials as set out in the Report of the Auditor on Financial Information in this Letter of Offer to have a more informed view before making the investment decision. The face value of the Equity Shares is Rs. 10 and the Issue Price is 32.5 times the face value of the Equity Shares. Qualitative Factors A differentiated business model: We have a differentiated business model, focusing primarily on high return areas of the two and three wheeler finance in the semi-urban and rural markets, consumer durables, personal computers and consumer loans. Support from our Promoter: Bajaj Auto Limited (BAL), which is our single largest shareholder and one of our promoters, is one of Indias leading two wheeler manufacturers. Pan India distribution network: We have a distribution infrastructure comprising 108 branches and 270 non-branch locations. Thus we have presence in 20 states primarily in semi-urban and rural areas, which in our view are under-penetrated. Cost of funds: For fiscal 2005 and fiscal 2006, our average cost of funds was 5.72% and 6.06% respectively. For the six months period ended September 30, 2006 our annualised average cost of funds was 6.96%. We believe that a strong balance sheet supported by sound rating and superior treasury management has enabled us to raise funds at extremely competitive rates, which would help us to fund our growth. Operating costs: Our operating costs for fiscal 2005 and fiscal 2006 aggregated to Rs. 667.29 million and Rs. 1,214.11 million respectively. Our operating costs for the six months period ended September 30, 2006 aggregated to Rs. 852.35 million. This has been achieved primarily on account of our low staff cost, outsourcing of non-core activities like verification, business sourcing, seizures and sales, data entry. Capital adequacy: As of March 31, 2006 and September 30, 2006, our capital adequacy ratio was 28.12% and 24.03% respectively as compared to the RBI requirements for NBFCs of 12%. This capitalisation level in relation to our asset size coupled with this Issue would enable us to substantially grow our business through leveraging our capital strength.

Quantitative Factor 1. Adjusted Earning Per Share (EPS)

Year
Fiscal 2004 Fiscal 2005 Fiscal 2006 Weighted Average

EPS (Rs.)
21.96 25.14 17.95 21.02

Weight
1 2 3

2.

Price/Earning Ratio (P/E) in relation to Rights Issue Price of Rs. 325 per equity share is 15.46x Industry P/E
Highest Lowest Industry Composite 95.8 1.0 18.2

(Source: Capital Markets Issue October 23-November 5, 2006)

23

BAJAJ AUTO FINANCE LIMITED 3. Return on Net Worth

Year
Fiscal 2004 Fiscal 2005 Fiscal 2006

Weighted Average

RONW (%) 15.62 16.00 7.81 11.84

Weight 1 2 3

4. 5.

Minimum Return on Total Net Worth* after Issue needed to maintain at pre-Issue EPS is 6.68%. Net Asset Value (NAV)* per share as on September 30, 2006: Rs. 235.02
Issue Price per share Net Asset Value per share as at March 31, 2006 Net Asset Value per share after the Issue
*Note: The Net worth used is prior to the conversion of the Warrants

Rs. 325 Rs. 229.93 Rs. 268.76

Comparison of accounting ratios with industry average

NBFC Sundaram Finance Limited Cholamandalam DBS Finance Limited Shriram Transport Finance Limited Quarter Ended June 2006 June 2006 EPS (Rs.) 62.4 8.0 P/E 6.4 19.3 RONW (%) 22.9 11.2 BV(Rs.) 291.9 83.2 P/BV 1.4 1.8

June 2006

8.3

13.7

32.5

47.2

2.8

Source: Capital Market : October 23-November 5, 2006 CMP Source: Bloomberg, November 30, 2006

The peer group above has been determined on the basis of the listed entities that are engaged in providing non banking financial services. However, each of these entities are focussed on providing finance to a select retail segment and therefore their business portfolio may not be directly comparable with that of our business. On the basis of the above qualitative and quantitative parameters, the Lead Manager and the Company are of the opinion that Issue price of Rs. 325 is justified.

24

BAJAJ AUTO FINANCE LIMITED

STATEMENT OF TAX BENEFITS

Subject to the fulfilment of the respective requirements of the relevant provisions, the following tax benefits will inter-alia be available on the basis of the current tax laws presently in force in India. I. A. UNDER THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE IT ACT): BENEFITS AVAILABLE TO THE COMPANY: (i) The Company will be entitled to claim depreciation allowance at the prescribed rates on assets under section 32 of the IT Act. (ii) Interest income received by the Company on specified tax-free bonds will be exempt under section 10(15) of the IT Act.

(iii) Dividend income referred to in section 115-O earned by the Company from domestic companies, will be exempt under section 10(34) of the IT Act. Similarly income received by the Company in respect of units of Mutual Funds specified under section 10(23D) will be exempt under section 10(35) of the IT Act. (iv) Income arising on transfer of equity shares or units of an equity oriented fund held by the Company will be exempt under section 10(38) of the IT Act if the said asset is a long-term capital asset and securities transaction tax has been charged on the said transaction. However, the said exemption will not be available to the company while computing the book profit and income tax payable under section 115JB. (v) The long-term capital gains arising to the Company from the transfer of listed securities or units, as defined, not covered under point (iv) above shall be chargeable to tax at the rate of 20% (plus applicable surcharge and education cess) of the capital gains computed after indexing the cost of acquisition or at the rate of 10% (plus applicable surcharge and education cess) of the capital gains computed before indexing the cost of acquisition, whichever is lower.

(vi) The long-term capital gains not covered under points (iv) and (v) above shall be chargeable to tax at the rate of 20% (plus applicable surcharge and education cess) of the capital gains computed after indexing the cost of acquisition / improvement. (vii) Short-term capital gains arising on transfer of equity shares or units of an equity oriented fund held by the Company will be chargeable to tax at the rate of 10% (plus applicable surcharge and education cess) as per the provisions of section 111A of the IT Act if securities transaction tax has been charged on the said transaction. (viii) In accordance with and subject to the conditions and to the extent specified in section 54EC of the IT Act, capital gains arising on transfer of long-term capital assets of the Company not covered under point (iv) above shall be exempt from capital gains tax if the gains are invested within six months from the date of transfer in the purchase of long-term specified assets. (ix) B. 1. (i) (ii) The Company has brought forward unabsorbed long-term capital loss, which is available for set off against taxable long-term capital gains in future years. BENEFITS AVAILABLE TO THE SHAREHOLDERS / DEBENTUREHOLDERS OF THE COMPANY: RESIDENTS: Dividend income earned on shares of the Company will be exempt in the hands of shareholders under section 10(34) of the IT Act. Income arising on transfer of the shares of the Company will be exempt under section 10(38) of the IT Act if the said shares are long-term capital assets and securities transaction tax has been charged on the said transaction. However, shareholders being companies will not be able to claim the above exemption while computing the book profit and income tax payable under section 115JB.

25

BAJAJ AUTO FINANCE LIMITED (iii) The long-term capital gains accruing to the shareholders of the Company from the transfer of the shares of the Company otherwise than as mentioned in point (ii) above shall be chargeable to tax at the rate of 20% (plus applicable surcharge and education cess) of the capital gains computed after indexing the cost of acquisition or at the rate of 10% (plus applicable surcharge and education cess) of the capital gains computed before indexing the cost of acquisition, whichever is lower. (iv) The long term capital gains accruing to the debenture holders of the Company from the transfer of the debentures of the Company shall be chargeable to tax @ 10% (plus applicable surcharge and education cess). (v) In case of an individual or Hindu Undivided Family, where the total taxable income as reduced by longterm capital gains is below the basic exemption limit, the long-term capital gains will be reduced to the extent of the shortfall and only the balance long-term capital gains will be subjected to such tax in accordance with the proviso to sub-section (1) of section 112 of the IT Act.

(vi) Short-term capital gains arising on transfer of the shares of the Company will be chargeable to tax at the rate of 10% (plus applicable surcharge and education cess) as per the provisions of section 111A of the IT Act if securities transaction tax has been charged on the said transaction. In case of an individual or Hindu Undivided Family, where the total taxable income as reduced by short-term capital gains is below the basic exemption limit, the short-term capital gains will be reduced to the extent of the shortfall and only the balance short-term capital gains will be subjected to such tax in accordance with the proviso to sub-section (1) of section 111A of the IT Act. (vii) In accordance with, and subject to the conditions and to the extent specified in section 54EC of the IT Act, long-term capital gains arising on transfer of the shares of the Company not covered under point (ii) above and on transfer of the debentures of the Company shall be exempt from capital gains tax if the gains are invested within six months from the date of transfer in the purchase of long-term specified assets. (viii) In accordance with, and subject to the conditions and to the extent specified in section 54F of the IT Act, long-term capital gains arising on transfer of the shares of the Company not covered under point (ii) above and on transfer of the debentures of the Company held by an individual or Hindu Undivided Family shall be exempt from capital gains tax if the net sales consideration is utilised, within a period of one year before, or two years after the date of transfer, for the purchase of a new residential house, or is utilised for construction of a residential house within three years. (ix) As per the provisions of section 88E, where the business income of an assessee includes profits and gains of business arising from transactions on which securities transaction tax has been charged, a rebate shall be allowed from the amount of income-tax equal to the securities transaction tax paid on such transactions. However, the amount of rebate shall be limited to the amount arrived at by applying the average rate of income tax on such business income. No deduction of tax at source will be made from interest on debentures payable to resident individuals where the aggregate amount of such interest during the financial year does not exceed Rs. 2,500/-. Deduction of tax at source will be made at a lower rate where the Assessing Officer, on an application by the debenture holder, issues a certificate for deduction at such lower rate as per the provisions of section 197(1) of the IT Act. NON-RESIDENTS: Dividend income earned on shares of the Company will be exempt in the hands of shareholders under section 10(34) of the IT Act. Income arising on transfer of the shares of the Company will be exempt under section 10(38) of the IT Act if the said shares are long-term capital assets and securities transaction tax has been charged on the said transaction. However, shareholders being companies will not be able to claim the above exemption while computing the book profit and income tax payable under section 115JB. 26

(x) (xi)

2. (i) (ii)

BAJAJ AUTO FINANCE LIMITED (iii) In accordance with, and subject to section 48 of the IT Act, capital gains arising on transfer of shares of the Company which are acquired in convertible foreign exchange and not covered under point (ii) above and on transfer of debentures of the Company which are acquired in convertible foreign exchange shall be computed by converting the cost of acquisition, expenditure in connection with such transfer and full value of the consideration received or accruing as a result of the transfer into the same foreign currency as was initially utilised in the purchase of shares / debentures and the capital gains computed in such foreign currency shall be reconverted into Indian currency, such that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing / arising from every reinvestment thereafter and sale of shares / debentures of the Company. (iv) The long-term capital gains accruing to the shareholders of the Company from the transfer of the shares of the Company otherwise than as mentioned in points (ii) and (iii) above shall be chargeable to tax at the rate of 20% (plus applicable surcharge and education cess) of the capital gains computed after indexing the cost of acquisition or at the rate of 10% (plus applicable surcharge and education cess) of the capital gains computed before indexing the cost of acquisition, whichever is lower. (v) The long term capital gains accruing to the debenture holders of the Company on the transfer of the debentures of the Company, otherwise than as mentioned in point (iii) above shall be chargeable to tax @ 10% (plus applicable surcharge and education cess).

(vi) Short-term capital gains arising on transfer of the shares of the Company will be chargeable to tax at the rate of 10% (plus applicable surcharge and education cess) as per the provisions of section 111A of the IT Act if securities transaction tax has been charged on the said transaction. (vii) In accordance with, and subject to the conditions and to the extent specified in section 54EC of the IT Act, long-term capital gains arising on transfer of the shares of the Company not covered under point (ii) above and on transfer of debentures of the Company shall be exempt from capital gains tax if the gains are invested within six months from the date of transfer in the purchase of long-term specified assets. (viii) In accordance with, and subject to the conditions and to the extent specified in section 54F of the IT Act, long-term capital gains arising on transfer of the shares of the Company not covered under point (ii) above and on transfer of debentures of the Company held by an individual or Hindu Undivided Family shall be exempt from capital gains tax if the net sales consideration is utilised, within a period of one year before or two years after the date of transfer, for the purchase of a new residential house, or is utilised for construction of a residential house within three years. (ix) As per the provisions of section 88E, where the business income of an assessee includes profits and gains of business arising from transactions on which securities transaction tax has been charged, a rebate shall be allowed from the amount of income-tax equal to the securities transaction tax paid on such transactions. However, the amount of rebate shall be limited to the amount arrived at by applying the average rate of income tax on such business income. Under the provisions of section 90(2) of the IT Act, a non-resident will be governed by the provisions of the Agreement for Avoidance of Double Taxation (AADT) between India and the country of residence of the non-resident if the said provisions are more beneficial than the provisions under the IT Act. Besides the above benefits available to non-residents, Non-Resident Indians (NRIs) have the option of being governed by the provisions of Chapter XII-A of the IT Act which inter alia entitles them to the following benefits in respect of income from shares of an Indian Company acquired, purchased or subscribed to in convertible foreign exchange: 27

(x)

BAJAJ AUTO FINANCE LIMITED a. In accordance with the provisions of section 115E of the Income-tax Act, interest income earned by NRIs on debentures of the Company will be taxed at 20% (plus applicable surcharge and education cess) in respect of debentures which are acquired in convertible foreign exchange. Under section 115E of the IT Act, NRIs will be taxed at 10% (plus applicable surcharge and education cess) on long-term capital gains arising on sale of shares of the Company which are acquired in convertible foreign exchange and are not covered under point (ii) above and on sale of debentures of the Company which are acquired in convertible foreign exchange. Under section 115F of the IT Act, and subject to the conditions and to the extent specified therein, longterm capital gains arising to NRIs from transfer of shares of the Company acquired out of convertible foreign exchange not covered under point (ii) above and on transfer of debentures of the Company acquired out of convertible foreign exchange shall be exempt from capital gains tax if the net consideration is invested within six months of the date of transfer of the asset in any specified asset or in any saving certificates referred to in clause (4B) of Section 10 of the IT Act. In accordance with the provisions of section 115G of the Act, NRIs are not obliged to file a return of income under section 139(1) of the IT Act, if their only source of income is income from investments or long-term capital gains earned on transfer of such investments or both, provided tax has been deducted at source from such income as per the provisions of Chapter XVII-B of the IT Act. In accordance with the provisions of section 115H of the IT Act, when NRIs become assessable as resident in India, they may furnish a declaration in writing to the Assessing Officer along with their return of income for that year under section 139 of the IT Act to the effect that the provisions of Chapter XII-A shall continue to apply to them in relation to such investment income derived from the specified assets for that year and subsequent assessment years until such assets are transferred or converted into money. As per the provisions of section 115-I of the IT Act, NRIs may elect not to be governed by the provisions of Chapter XII-A for any assessment year by furnishing their return of income for that year under section 139 of the IT Act, declaring therein that the provisions of Chapter XII-A shall not apply to them for that assessment year and accordingly their total income for that assessment year will be computed in accordance with the other provisions of the IT Act. The said Chapter inter alia entitles NRIs to the benefits stated thereunder in respect of income from shares of an Indian company acquired, purchased or subscribed in convertible foreign exchange. FOREIGN INSTITUTIONAL INVESTORS (FIIs): Dividend income earned on shares of the Company will be exempt in the hands of shareholders under section 10(34) of the IT Act. Interest income earned on debentures of the Company will be chargeable to tax @ 20% (plus applicable surcharge and education cess) as per the provisions of section 115AD(1)(a)(i) of the IT Act.

b.

c.

d.

e.

f.

3. (i) (ii)

(iii) Income arising on transfer of the shares of the Company will be exempt under section 10(38) of the IT Act if the said shares are long-term capital assets and securities transaction tax has been charged on the said transaction. (iv) Under section 115AD(1)(b)(iii) of the IT Act, income by way of long-term capital gains arising from the transfer of shares held in the Company not covered under point (iii) above and the transfer of debentures held in the Company will be chargeable to tax at the rate of 10% (plus applicable surcharge and education cess). (v) Short-term capital gains arising on transfer of the shares of the Company will be chargeable to tax at the rate of 10% (plus applicable surcharge and education cess) as per the provisions of section 111A of the IT Act if securities transaction tax has been charged on the said transaction.

(vi) Under section 115AD(1)(b)(ii) of the IT Act, income by way of short- term capital gains arising from 28

BAJAJ AUTO FINANCE LIMITED the transfer of shares held in the Company not covered under point (v) above and from the transfer of debentures held in the Company will be chargeable to tax at the rate of 30% (plus applicable surcharge and education cess). (vii) Under the provisions of section 90(2) of the IT Act, a FII will be governed by the provisions of the Agreement for Avoidance of Double Taxation (AADT) between India and the country of residence of the FII if the said provisions are more beneficial than the provisions under the IT Act. 4. MUTUAL FUNDS: Under section 10(23D) of the IT Act, any income earned by a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992, or a Mutual Fund set up by a public sector bank or a public financial institution, or a Mutual Fund authorised by the Reserve Bank of India would be exempt from income-tax, subject to such conditions as the Central Government may by notification in the Official Gazette specify in this behalf. II. (i) UNDER THE WEALTH TAX ACT, 1957 AND THE GIFT TAX ACT, 1958: Asset as defined under Section 2(ea) of the Wealth-tax Act, 1957 does not include shares and debentures in companies and hence, the shares / debentures of the Company held by a shareholder / debenture holder are not liable to wealth-tax. Gift tax is not leviable in respect of any gifts made on or after 1st October, 1998 and in respect of nonmonetary gifts made on or after 1st September, 2004. Therefore, any gift of shares / debentures of the Company will not attract gift-tax.

(ii)

29

BAJAJ AUTO FINANCE LIMITED

SECTION IV : ABOUT US OUR INDUSTRY

The information in this section has been extracted from publicly available documents prepared by various sources and has not been prepared or independently verified by us or any of our advisors. The Indian Market Scenario Macro Economic Scenario The Indian economy has grown significantly in recent years. The Indian Gross Domestic Product (GDP) recorded a growth rate of 7.5% in 2004-05 over the previous year and amounted to almost Rs 28,500 billion. The growth rate recorded was amongst the highest ever, and according to the revised estimates of the Central Statistical Organisation, growth rates for 2005-06 are expected to be 8.4%. The overall growth of GDP during the first quarter of 2006-07 was 8.9% as compared to 8.5% during the first quarter in 2005-2006. The services segment will aid in accelerating growth and it is estimated to have grown at 10.4% in the first quarter of 200607.The growth numbers reaffirm Indias position as an accelerated emerging economy on the global map. According to the World Bank, India is also the 4th largest economy in terms of purchasing power parity (PPP). [Source: Central Statistical Organisation - Economic Survey 2004-2005, Monthly Economic Report- October 2006, Businessworld - The Marketing Whitebook, 2005] India by Macro-Economic Parameters

1999-2000 GDP (Rs billion)* GDP growth Per capita GDP* (Rs) 19,369 6.1 19,350

2000-2001 20,899 4.4 20,509

2001-02 22,821 5.8 22,007

2002-03 24,696 4.0 23,408

2003-04 27,721 8.2 NA

2004-05 28,438 7.5 NA

Source : Businessworld, The Marketing Whitebook, 2005, Department of Economics and Statistics

* GDP and per capita GDP measured at current prices The Per Capita GDP has increased by a CAGR of 9.1% between 1998-99 and 2002-03. The economic strata in the economy have also shown signs of improvement. Various classes of society have grown at rates in excess of 5% with the middle, upper-middle and high income classes in the rural and urban set-up recording growth rates to the extent of 6.6%, 9.3% and 18.6% respectively during the same period. [Source: Economic Survey 2004-2005, Businessworld - The Marketing Whitebook, 2005]
Average Annual Growth in Per Capita Income (CAGR in %) 1995-96 to 1998-99 Urban Lower-middle Middle Upper-middle High 0.9 5.3 9.9 21.5 Rural 7.7 7.8 8.6 14.3 Total 5.6 6.6 9.3 18.6

Income Class*

Source: Businessworld, The Marketing Whitebook, 2005 * Inflation adjusted, comparable over time

In addition, the face of rural India is undergoing a positive transition. A study by NCAER suggests that by 2006-07, the number of poor rural households will shrink by half to 28 million in 2006-07 from 61 million in 1997-98. The middle income group will double and the rich households will treble over the decade. This transition will aid in further fuelling consumerism within the rural segment. [Source:Businessworld - The Marketing Whitebook, 2005] 30

BAJAJ AUTO FINANCE LIMITED Demographic statistics for the country further validate increased appetite for consumerism, which is suggested by 53% of the total population being below 25 years. This compares favourably even with China where the corresponding number is 42%. In addition, according to the Asian Demographics Report, the Indian consumerist bracket (20-54 years) is growing at an accelerated pace and will represent more than 50% of the population 2010. [Source: Businessworld-The Marketing Whitebook, 2005] The macro trends in India in terms of GDP growth rates, increase in the middle and higher end of the economic strata and the positive changing face of the demographics scenario suggest an increased appetite of the Indian consumer in the foreseeable years. The Indian Consumer The average Indian spent Rs 5,745 in 1992-93 and this number increased to Rs 15,082 in 2002-03, which amounts to a CAGR of 10.13% at current prices. The consumer basket is undergoing a significant change, with consumer spending on basic items such as food, beverages and tobacco decreasing with an increased spending on personal care items, entertainment and consumer durables. The supply side change also augment the buyers purchasing power and over the past few years one has witnessed falling interest rates, increased and easier consumer credit and also a plethora of high quality goods and services at every price point. [Source: Businessworld-The Marketing Whitebook, 2005]
The Consumers Shopping Basket 1999
Others 16% Hom e appliances 3% Sa vings & investment 14% Clothing 5% Consumer dura bles 6% Va tion ca 4% Personal care items 6% Grocery 40% Sa vings & investm ent 4% Others 27%

2003

Clothing 7%

Cons umer dura bles 7% Va tion ca 4% E nterta inment 2% Acces sories 1% Personal ca re items 8%

E nter ta inment 3%

Grocery 43%

Source: BusinessWorld, The Marketing Whitebook, 2005 The Non-Banking Finance Companies
Industry Structure
(3)

The Reserve Bank of India (RBI) Act, 1934 as amended in 1997 defines the principle activity of a NonBanking Finance Company (NBFC) as that of receiving deposits or that of a financial institution, such as, lending, investment in securities, hire purchase finance or equipment leasing. NBFCs in India service a gamut of segments and could be a combination of the definitions in the table below. [Source: ICRA]

31

BAJAJ AUTO FINANCE LIMITED

Entity Equipment leasing company (ELC) Hire purchase finance company (HPC) Investment company (IC) Loan company (LC)

Principal Business Equipment leasing or financing of such activity Hire purchase transactions or financing of such transactions Acquisition of securities includes primary dealers which, inter alia deal in underwriting and market-making for government securities Providing finance by making loans or advances, or otherwise for any activity other than its own, excludes EL/HP/Housing Finance Companies (HFCs) Receiving deposits under any scheme or arrangement, by whatever called, in one lump-sum or in installments by way of contributions or subscriptions or by sale of units or certificates or other instruments, or in any manner. These companies do not belong to any of the categories as stated above.

Residuary non-banking company (RNBC)

Source: ICRA

As of December 2005, there were 573 NBFCs servicing the segments as mentioned in the table above. Of theses, 316 NBFCs or 55.1% of the NBFCs serviced the hire purchase segment, with 59 investment focused NBFCs, 38 equipment leasing NBFCs, 3 Residuary Non-Banking Finance Companies (RNBC) and 157 others. [Source: ICRA] Non-Banking Finance Companies (NBFCs) are an integral part of the countrys financial system because of their complementary as well as competitive role. They act as a critical link in the overall financial system catering to a large market of niche customers. As a result of consolidation and restructuring in the financial sector and liberalisation and globalisation of markets only a few strong NBFCs now remain in business. However, competition continues to be intense, as the Indian and foreign banks have entered the retail lending business in a big way, thereby exerting pressure on margins. On the regulatory front, NBFCs are regulated by the Reserve Bank of India (RBI) almost at par with banks. All the prudential norms for asset classification, income recognition, provisioning etc., are applicable to NBFCs. In terms of the forms of disbursements by NBFCs, the largest share as of March 2005 was allotted to hire purchase financing, which amounted to 42% of total assets. This was followed by intercorporate loans and deposits which accounted for 33.9%, investments at 10.3%, equipment leasing at 5.8% and bills which accounted for a minimal 1.4%. Other disbursements amounted to 7.1% of total assets. NBFCs fund their disbursements through public deposits and as on March 2005, public deposits held by 573 NBFCs (excluding 3 Residuary Non-Banking Finance Companies, RNBC) amounted to Rs 202 Billion, which aggregates to 1.1% of aggregate deposits of the Scheduled Commercial Banks (SCB). [Source: ICRA] NBFCs and SCBs have traditionally been extending credit across various parts of the country through their geographical presence, with NBFCs being a supplier of credit to segments such as equipment leasing, hire purchase, housing finance and consumer finance. These are areas which warrant infusion of financing due to the existing demand-supply gap. NBFCs have been a more flexible source of financing and have been able to disburse funds to a gamut of clientele, from the local common man to a variety of corporate clientele. NBFCs are also able to accelerate the pace of decision making to disburse funds, customise and tailor their products according to the client needs and take on excess risks on their portfolio. The added risk augments the higher interest rates charged by NBFCs compared to SCBs. Evolution NBFCs have existed in the Indian domain over a large span of time; however, they gained distinction during the late-80s. A number of factors contributed to the increased activity in the NBFC space, namely a lesser degree of regulations compared to banks and the scope provided by financial liberalisation within new areas such as equipment leasing, hire purchase, housing and investment. The deposits accumulated by NBFCs 32

BAJAJ AUTO FINANCE LIMITED could be extended to these avenues. Another factor contributing to the increased focus on NBFCs was the higher rate of interest offered by them vis--vis SCBs which allowed them to attract the small savers in the country. Other factors leading to a proliferation of NBFCs were no entry barriers, limited fixed assets and no holding of inventories. This led to total assets of NBFCs increasing at a CAGR of 36.7% between 1991 and 1998 and total deposits as a proportion of bank deposits increasing from 0.8% during 1986-90 to 9.5% in 1997. [Source: ICRA] Since 1997, the proliferation of NBFCs was followed by a gradual decline. This was a consequence of a slowdown in the economy, tightening of regulations and a loss of investor confidence further decelerated the growth. The number of NBFCs has decreased from 1,547 NBFCs in March 1999 to 573 in March 2005. The decline in number was also caused by many NBFCs exiting the deposit taking activity. Total public deposits of NBFCs have decreased from Rs 238 Billion in March 1998 to Rs 202 Billion in March 2005. [Source: ICRA] There has also been a gradual shift in asset deployment towards various segments. Deployment towards equipment leasing and hire purchase decreased from 46.7% in March 2001 to 44.3% in March 2005. On the other hand, loans, investments and ICDs have increased their share in the deployment pie with contribution towards them increasing from 38.8% in March 2001 to 43.8% in March 2005. [Source: ICRA] Competition from SCBs SCBs and NBFCs compete with each other for public deposits and avenues to source their funds, if they compete in the same sections of the credit markets. SCBs offer lower interest rates on their deposits but the deposits have increased at rates higher than those recorded by NBFCs. According to extant regulations, SCBs are not required to pay interest on demand deposits, with interest on savings deposit capped at 3.5%. Term deposit interest rates range between 2%-7%. The interest rates paid by NBFCs are substantially higher. [Source: ICRA] Indicators of Competition between SCBs and NBFCs
At March 31 Assets Rs. Billion SCBs NBFCs NBFCs as % of assets of SCBs Deposits Rs. Billion SCBs NBFCs NBFCs as % of deposits of SCBs 7,708 204 2.7 9,003 193 2.1 10,552 181 1.7 12,059 188 1.6 13,557 201 1.5 15,785 196 1.2 18,370 202 1.1 95,037 470 5.0 11,100 513 4.6 12,952 539 4.2 15,364 583 3.8 16,991 581 3.4 19,740 507 2.6 23,560 529 2.2 1999 2000 2001 2002 2003 2004 2005

Source: ICRA

There exist differences on the public deposits accepted for tenure of less than 1 year and the cost of funds for NBFCs and SCBs. As on March 2005, 40.2% of total deposits of SCBs belonged to a maturity of less than 1 year. For NBFCs the corresponding number was 31.4%. Cost of funds for SCBs declined, with interest expense as a percentage of average assets declining from 5.79% in 2003 to 4.77% in 2004. During 2005, NBFCs witnessed finance expenditure to average assets ratio of 5.3%. [Source: ICRA]

33

BAJAJ AUTO FINANCE LIMITED Interest Rate Pattern of Public Deposits of NBFCs (Percent of deposits)
At end-March Upto 10% 10-12% 12-14% 14-16% More than 16% Total
Source: ICRA

2000 0.3 7.1 44.4 34.6 13.7 100

2001 1.8 21.7 42.7 23.7 10.0 100

2002 6.0 34.6 39.2 14.0 6.1 100

2003 23.3 41.7 22.6 9.4 2.9 100

2004 43.9 36.7 11.7 5.9 1.8 100

2005 71.4 19.9 4.5 3.0 1.2 100

The RBI is encouraging NBFCs to decrease focus on public deposits to source their funds. Internationally, deposits are sourced from institutions and capital markets and the RBI is pushing for increased dependence on these fund sources. The Indian consumer has also witnessed a change in attitude towards consumer credit for the purpose of retail financing. Over the years, consumers have become more accepting towards borrowing and there is no social stigma attached to funding purchases by means of credit. The retail finance market includes disbursements towards a gamut of segments, such as housing, commercial vehicles and two wheelers amongst others. Two Wheeler Financing Market Overview The outstanding portfolio of the two-wheeler finance market is expected to reach Rs 308 billion by 2009-10, from the current size of Rs. 181 billion, recording a CAGR of approximately 20% during the period. The organized two-wheeler finance market is estimated to be Rs 263 billion in 2009-10. The average tenure is expected to increase from approximately 26 months in 2005-06 to 30 months in 2009-10, due to an increase in the number of loans being sanctioned for duration of 36 months and above.
[Source: CRIS INFAC, Two Wheeler Finance Industry, July 2006]

Two wheeler finance portfolio (Rs Billion)

2001-02E Outstanding portfolio Average tenure (months) 50 21 2004-05E 114 25 2005-06E 149 26 2006-07P 181 27 2009-10P 308 30 2002 2006 CAGR (%) 31.71% 2006-2010 CAGR (%) 19.86%

Source: CRIS INFAC, Two Wheeler Finance Industry, July 2006

The percentage of vehicles being financed through credit has been increasing steadily over the past few years, recording a penetration of 67% in 2005-06. This penetration is expected to increase to 75% in 200910. The average loan-to-value (LTV) for two wheeler financing has also been on the rise, primarily backed by the aggressive approach of private sector banks. It has increased from about 71% in 2001-02 to about 76% in 2005-06. Going forward, the average LTV is expected to stabilise at about 80% by 2009-10.
(Source: CRIS INFAC, Two Wheeler Finance Industry, July 2006)

The two wheeler finance segment is a relatively young market compared to other vehicle financing segments, 34

BAJAJ AUTO FINANCE LIMITED such as the commercial vehicles segment. The market is yet in its growth phase unlike other vehicle finance markets such as cars, utility vehicles and commercial vehicles. Mature markets, within the auto finance market, are those where the LTV ratio and the proportion of vehicles financed have stabilised at higher levels. More organised players are expected to enter the market and increase geographical reach and availability of the two-wheeler finance. Disbursements- Organised two wheeler finance market (Rs billion)
2001-02E New Vehicle Two-wheeler sales value % of vehicles financed Two-wheeler finance market Average loan-to-value (%) 2004-05E 2005-06E 2006-07P 2009-10 2002-06 CAGR (%) 2006-10 CAGR (%)

158 53 60 71

234 65 114 75

288 67 146 76

315 69 166 77

444 75 263 80

16.10

11.45

25.06

15.85

E: Estimated P: Projected Source: CRIS INFAC, Two Wheeler Finance Industry, July 2006

Fragmentation persists in the two wheeler segment compared to other segments. The Top 5 players accounted for 50% of the two wheeler finance market, compared with 80% in the car and utility vehicles finance segment and 57% in the commercial vehicle finance segment. Smaller players in the segment include NBFCs, cooperative banks, public sector banks and old private sector banks. Currently, 55-60% of the two wheeler sales come from the urban/semi urban areas with the rural areas accounting for the remaining. Increased focus on the rural segment might be a trend going forward as companies increase their geographical reach to encompass rural areas. (Source: CRIS INFAC, Two Wheeler Finance Industry, July 2006) Key Growth Drivers The two wheeler finance market is estimated to record a CAGR of 19.86% between 2005-06 and 2009-10. Some of the drivers fuelling the growth in the two wheeler finance segment are the following : Rising income levels within various economic strata. Lack of adequate public transport facilities. An increase in the geographical presence of financiers to the rural markets in India, augmented by an increase in the aspiration levels in rural India. Availability of improved models in the auto segment and lack of adequate public transport infrastructure Higher aspirational levels from the rural market and the new found interest of the female population.

Source: CRIS INFAC- Annual Review on the Retail Finance Industry, March 2005, Businessworld-The Marketing Whitebook, 2005, CRIS INFAC, Two Wheeler Finance Industry, July 2006

Consumer Durables Industry Overview The Indian Consumer Durables industry is estimated at approximately Rs 200 Billion and has accounted for a larger proportion of the Indian consumer basket at 6.6% in 2003 over 3.9% in 2002. The growth recorded has been across the gamut of categories encompassing the colour televisions, washing machines, frost free refrigerators amongst others. [Source:Businessworld-The Marketing Whitebook, 2005] Demand and supply side dynamics contribute to healthy growth rates in the industry with demand side characteristics being fragmentation of urban families into nuclear families, whereas supply side characteristics are improved availability of credit expansion of dealer networks etc. 35

BAJAJ AUTO FINANCE LIMITED

Durable Sales: V olume and Value (% )
120 100 80 60 40 20 0 (20) 98.5 63.4 45.9 8.9 0.8 5.4 -1.2 18.6 10.7 10.7 4.7 19.4 13.5 12.5 4.8 36.9

CTV

Flat CTV

Total Ref

Frost f ree ref

Total WM

Fully auto WM Semi auto WM

Mini V CD

Volum e grow th 03/02

V alue grow th 03/02

Source:Businessworld-The Marketing Whitebook, 2005

For consumer durables, the top 40 million households in India, comprising 24 million households in urban India and 17 million households in rural India would be core consumption classes. As the table below reflects, consumer durables have witnessed growth in demand and penetration across the households in urban and rural India with higher growth rates as one goes down the economic strata curve. [Source:BusinessworldThe Marketing Whitebook, 2005] Reaching far and wide (Increase in Penetration 1997-01*)
Category Two-wheeler Car Refrigerator Colour TV PC Washing Machine Urban top 5 Mnhh** +2 +6 +4 +26 +12 +10 Urban next 7 Mnhh +3 +7 +15 +14 Urban next 13 Mnhh +7 +11 +28 +3 Urban next 13 Mnhh +4 +6 +16 1 Rural top 5 Mnhh +3 +6 +14 Rural next 12 Mnhh +7

+11

* No. of percentage point increase in penetration in that group ** Mnhh : Million Households

Source : BusinessWorld, The Marketing Whitebook, 2005 Within the durables space, even though Indias personal computers (PC) and internet segment has been showing improved penetration levels, India is still plagued by low PC penetration levels, high cost of net access hardware and low telephonic penetration.

PC Penetration (per 000 people)

14 12 10 8 6 4 2 0 Mar-97 1998 1999 2000 2001 2002 2003 2004 2005 1.63 2.17 2.83 3.72 4.94 6.41 9.63 7.81 11.92

Source: The Marketing Whitebook, 2005

36

BAJAJ AUTO FINANCE LIMITED

Indias Total PC population

16,000 13,486 12,000 8,482 8,000 5,070 4,000 0 Mar-97 1998 1999 2000 2001 2002 2003 2004 2005 1,570 2,120 2,810 3,760 6,709 10,650

Source: The Marketing Whitebook, 2005

37

BAJAJ AUTO FINANCE LIMITED

OUR BUSINESS
Unless stated otherwise, the financial data in this section is taken from our restated financial statements set forth in this Letter of Offer, beginning on page 87. In this section any reference to we, us, our, the Company or BAFL refers to Bajaj Auto Finance Limited. Overview We are one of Indias leading retail finance companies. We are primarily engaged in providing finance for BALs two and three wheeler vehicles, consumer durables, personal computers and consumer loans. For the year ended March 31, 2005 our disbursements for two and three wheeler vehicles, consumer durables, personal computers and consumer loans comprised 56%, 28%, 11% and 5% of our total disbursements respectively. For the year ended March 31, 2006 our disbursements for two and three wheeler vehicles, consumer durables, personal computers and consumer loans comprised 60%, 24%, 13% and 3% of our total disbursements respectively. For the six months period ended September 30, 2006 our disbursements for two and three wheeler vehicles, consumer durables, personal computers and consumer loans comprised 59%, 22%, 17% and 2% of our total disbursements respectively. As of March 31, 2006 and September 30, 2006 we had approximately 3.44 million and 3.93 million individuals, respectively as customers across India. Bajaj Auto Limited (BAL), which is our single largest shareholder, is one of Indias leading two wheeler manufacturers. In fiscal 2005 we funded 17.72% of BALs two wheeler sales in India other than exports. In fiscal 2006 we funded 16.79% of BALs two wheeler sales in India other than exports. We currently operate in 82% of BALs dealerships. As part of our strategy for two wheelers, we have focussed on financing BALs two wheelers. We will continue to derive significant fiscal and operational benefits by leveraging our relationship with BAL. We were originally incorporated as a private limited company on March 25, 1987 after which we became a deemed public company by virtue of section 43 A of the Companies Act, 1956 with effect from October 20, 1987. We are currently registered as a non banking finance company (NBFC) in terms of Section 45 IA of the Reserve Bank of India Act, 1934. We commenced our operations by providing finance mainly for two wheelers through our first branch in Hyderabad. As of September 30, 2006 we have a presence in 20 states across the country with a network of 108 branch offices, 270 satellite locations, 47 direct marketing / selling agents. Notwithstanding our pace of growth, we have maintained a strong balance sheet and a low cost of funds. As of March 31, 2006 and September 30, 2006 our net non performing assets constituted 2.31% and 3.07% respectively of our receivables. Our average interest cost of borrowed funds excluding equity for fiscal 2006 was 6.06% and for the six months period ended September 30, 2006 was 6.96% (annualised) which we believe provides us with a competitive advantage. From fiscal 2005 to fiscal 2006 our total disbursements increased by 39%. Out of the total disbursements from fiscal 2005 to fiscal 2006, our disbursals, two wheelers and three wheelers increased by 50% from Rs. 7,816 to Rs. 11,722, and consumer durables increased by 16% from Rs. 4,004 million to Rs. 4,634 million. Competitive Strengths We believe that we benefit from certain competitive strengths that have enabled us to achieve high growth and profitability: We leverage our relationship with our Promoter: Bajaj Auto Limited, which is our single largest shareholder and one of our promoters, is one of Indias leading two wheeler manufacturers. In fiscal 2005, we funded 17.72% of BALs two wheeler sales in India other than exports. In fiscal 2006 we funded 16.79% of BALs two wheeler sales in India other than exports. As of September 30, 2006, we operate in 82% of BALs dealerships in India. As part of our strategy we have focussed on financing BALs two and three wheeler vehicles. We use our Promoters dealership channels for lending to their clients. We derive financial support from BAL in the form of credit lines. As on June 30, 2005, we had access to facilities for Rs. 2.5 billion for two-wheeler vehicles financed under special schemes from BAL. As 38

BAJAJ AUTO FINANCE LIMITED of the date of this letter of offer, BAL holds 6,597,060 shares in the Company representing 31.42% of the total paid up equity share capital of the Company. In January 2006, BAL invested Rs. 534.60 million in our Company by way of subscription to Equity Shares and warrants convertible into Equity Shares issued on preferential basis. Pan India distribution network: As of September 30, 2006 we have a presence in 20 states across the country with a network of 108 branch offices, 270 independent satellite locations, 35 direct marketing agents and 12 direct selling agents. We have spread our branches across urban, semi urban and rural areas. We believe that the spread of our branches and non-branch locations allows us to reach out to our target customers. 66 of our branches locations are located in the semi-urban and rural areas, which in our view are under-penetrated by our competitors. Low cost of funds: For fiscal 2005 and fiscal 2006, our average interest cost of borrowed funds was 5.72% and 6.06% respectively. For the six months period ended September 30, 2006 our annualised average cost of funds was 6.96%. We believe that our balance sheet supported by sound rating and effective treasury management has enabled us to raise funds at competitive rates. We have obtained a credit rating FAAA for our public deposits and P1+ for our commercial paper. In addition CRISIL has assigned a rating of AA+ (Stable) for Rs. 1,000 million and for Rs. 3,500 million of Non Convertible Debentures. ICRA has assigned a rating of LAA+, for our Non Convertible Debentures for debentures amounting to Rs.3,500 million. The rating indicates that the prospect of timely servicing of the interest and principal as per terms is the best. Low operating costs: Our operating costs for fiscal 2005, fiscal 2006 and the six months period ended September 30, 2006 aggregated to Rs. 667.29 million, Rs. 1,214.12 million and Rs. 852.35 million respectively. This constituted 39.47%, 50.02% and 57.09% of our total income for the respective periods. This has been achieved primarily on account of our low staff cost, outsourcing of non-core activities like credit and asset verification, business sourcing, seizures, sales and data entry. Strong capital adequacy: As of March 31, 2006 and September 30, 2006, our capital adequacy ratio was 28.12% and 24.03% respectively as compared to the RBI requirements for NBFCs of 12%. This capitalisation level in relation to our asset size would enable us to substantially grow our business through leveraging our capital strength.

Business strategy Consolidate on BALs two and three wheeler vehicle financing: In fiscal 2005 we funded 17.72% of BALs two wheeler sales in India other than exports. In the fiscal 2006 we funded 16.79% of BALs two wheeler sales in India other than exports. We currently operate in 82% of BALs dealerships. We intend to increase our geographic coverage by increasing our presence in more of BALs dealerships. We have initiated new promotional schemes to attract more customers to add to our customer base. We have also provided for customer convenience by introducing non conventional recovery systems such as using post offices as recovery points. Expansion into semi-urban and rural field: We believe that there is a potential for us to grow in the rural and the semi-urban market as there are few players in those markets. Further there is a physical need for transportation and lack of infrastructure in these markets. As of September 30, 2006, we have 66 branches in the semi-urban and the rural markets which comprise 61% of our total branches. We currently have plans to establish an additional 19 branches fielding these markets. By focusing on the semi-urban and the rural markets we intend to focus on customers from the agriculture segment which includes farmers and persons dependant on agriculture as a source of livelihood and the transitional segment which includes shop keepers and persons not dependent on agriculture for their livelihood. Customer acquisition through cross selling initiatives focussing on financing consumer durables and personal computers: We have been able to increase our customer base over the years through sustained efforts and focus on the two wheeler financing market. As a result of the same, we currently have on hand a data base with the social demographic and credit details of a large number of individuals. As 39

BAJAJ AUTO FINANCE LIMITED on March 31, 2006 our customer base stood at 3.44 million. The customers that we seek to attract through cross selling are essentially the same customers we already have access to through our two wheeler financing initiatives in the past. This offers us an opportunity to cross sell our other financing schemes for other products to the same customer. We believe that focussing on financing alternative products like consumer durables and personal computers would help in de-risking our business portfolio. Further, we believe financing these products offers us better margins than two and three wheeler vehicle finance. Our margins for consumer durables, personal computers and personal vary from 22% to 32% as opposed to 15% to 22% for two and three wheelers. As of fiscal 2005 and fiscal 2006, our disbursements for consumer durables were 28% and 24% respectively. As of fiscal 2005 and fiscal 2006 our disbursements for personal computers were 11% and 13% respectively. Technology: As we intend to expand our retail products and geographic reach, we believe it is necessary for us to strengthen our technology platform to support our growth and improve our credit analysis tools. This would enable us to create a comprehensive knowledge base, customer profile and customer support systems, which in turn would assist us in our cross selling initiatives. Besides, we believe would also reduce our operational and processing time and thereby improve our operating efficiencies.

Our Business We currently have approximately 3.93 million individuals as customers across India who mainly comprise of the middle income to lower middle income bracket. Our loans are generally secured by hypothecation and our recoveries are through payment by way of post dated cheques or electronic clearance systems. Our loan assets grew from Rs. 7,724 million to Rs. 12,487 million from fiscal 2004 to fiscal 2005. For the year ended March 31, 2006 our loan assets have grown to Rs. 19,811 million. Our loan assets as on September 30, 2006 aggregate to Rs. 23,171 million. Our Products We are engaged in providing finance for two and three wheeler vehicles, consumer durables, personal computers and consumer loans. The following table sets forth our disbursements to various products for the last four years and the six months period ended September 30, 2006: (In Rs. Million)

Fiscal 2003

Fiscal 2004

Fiscal 2005

Fiscal 2006

Six months ended September 30, 2006

6,741.48 2,531.12 1,866.39 223.15

Two and Three Wheeler Finance Consumer Durables Finance Personal Computers Finance Consumer Loans

3,743.96 3,404.72 413.00 282.03

4,985.96 3,585.00 865.03 335.77

7,816.30 4,004.21 1,607.74 635.00

11,722.26 4,633.90 2,498.86 690.41

Two and Three Wheeler Finance We offer secured loans at fixed interest rates for financing new two wheeler purchases of BAL vehicles. In addition to our general marketing efforts for retail loans, we market this product through schemes with BAL involving local BAL dealerships in 108 locations across India. The average loan size for financing two wheelers varies from Rs. 30,000 to Rs. 35,000. Typically, our loan schemes are based on tenure ranging from 12 months to 36 months. For two wheeler financing, our gross IRR range from 15% to 19%. We also offer secured loans at fixed interest rates for financing new non passenger three wheelers of BAL vehicles. Recently, we have also initiated financing new three wheeler (passenger) vehicles of BAL. We 40

BAJAJ AUTO FINANCE LIMITED market this product through schemes with BAL involving BAL dealers in more than 93 locations across India. The average loan size for financing three wheelers varies from Rs. 0.1 million to Rs. 0.12 million. Typically, for three wheeler financing, our loan products are based on tenure ranging from 24 months to 36 months. For three wheeler financing, our gross IRR range from 15% to 22%. Consumer Durables We offer secured consumer durable loans at fixed rates targeted at specific customer profiles, including salaried individuals, farmers and self-employed professionals. As observed in the last few years, the traditionally debt-averse Indian consumers have been gradually becoming more and more pro credit and have aspirations to enhance the quality of their life. The average loan size for financing consumer durables varies from Rs. 7,500 to Rs. 12,500. Typically, for consumer durables, our loan products are based on tenure ranging from 12 months to 24 months. For these products, our gross IRR range from 22% to 26%. Personal Computers We offer secured loans at fixed interest rates for financing computers manufactured by companies like HCL, new and / or assembled personal computers. We are amongst the few players to finance purchase of assembled personal computers. Taking into account the very low penetration of personal computer financing in India (Source: The Marketing Whitebook, 2005), we believe there is business potential for marketing financing in this area. The average loan size for financing personal computers varies from Rs. 25,000 to Rs. 30,000. Typically, for personal computers, our loan products are based on tenure ranging from 12 months to 24 months. For these products, our gross IRR range from 22% to 28%. Consumer loans We offer unsecured consumer loans at fixed rates to specific customer segments, including salaried individuals, farmers and self-employed professionals. The average loan size for consumer loans varies from Rs. 20,000 to Rs. 30,000. Typically, for this segment, our loan products are based on tenure ranging from 12 months to 36 months. For these products, our gross IRR range from 28% to 32%. Marketing and distribution network Since 1992 we have expanded our network from six to 108 branches spread out across 20 states. There has been an accelerated growth of our branch networks since fiscal 2002 from 46 branches to 108 branches. There are approximately 12 DSAs associated with each of these branches, thereby enhancing our network multifold with each addition of a branch. Our marketing initiatives include direct marketing to our customers through personal mails in the form of emails and postal mails and direct marketing through product dealer networks and marketing through our outsourced DSAs. In addition, we have also entered into arrangements with local dealers on the launch of new schemes where we fund the advertising costs of the schemes. We also participate in loan melas where we offer our loan products under special schemes such as festive offers, year end offers etc. Further, we also participate in product exhibitions where we exhibit our financing options for the products offered in the exhibitions.

Fiscal 2003 Branches DSAs Satellite Locations Number of Customers 57 1 58 1,614,722

Fiscal 2004 60 12 130 2,103,350

Fiscal 2005 90 30 185 2,709,396

Fiscal 2006 102 12 218 3,449,579

Six months period ended September 30, 2006 108 12 270 3,932,329

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BAJAJ AUTO FINANCE LIMITED Our Operations Approval and Branch rating Our branches are empowered to approve loans within the scheme guidelines depending on the rating that has been granted to such branches. Our branches are rated based on certain criteria approved by us that depend on the classification of the geographical area, number of customers, demographic details of the customers and general income profile of the population in the area of the branch and based on collection efficiency of the branch. Loans that fall outside our pre-determined credit guidelines for our branches are reviewed at our head office for specific sanction. We have a cap of Rs 0.5 million for each loan that is granted. In the event that this cap is exceeded, the approval of the Board is required for disbursement of the same. Customer evaluation We conduct an initial evaluation of our customers based on income criteria and on residential status. We have a designated credit officer who does an independent evaluation of the basic documentation provided by the customer. Further, we have outsourced the customer verification exercise to direct marketing associates. We maintain our verification reports on record for future reference. Loan approval and documentation Upon completion of the initial evaluation of our customers, by our credit officer through an in-house credit scoring model and the independent verification agency, the branch manager approves the loan and intimates the same to the respective dealers and to the concerned customer. The customer provides us with standard documentation for our records as per our pre-determined parameters. The customer then enters into a standard agreement with us for the loan and also provides us with post-dated cheques factoring in the margin amount. The approved loan is converted into a document clearance note which is sent to head office for onward transmission of disbursement to the dealer. Loan Monitoring Once the disbursal of the loan amount has taken place, the duly completed agreements are sent to the head office which in turn books the contract into the books of account. A unique contract number and a customer account is assigned to each customer vide which the loan transaction is monitored until the successful completion of the contract. Recovery process Our loan recovery process is primarily through post-dated cheques and ECS mandates. However, in the rural market, customers directly deposit cash into our designated accounts. The post-dated cheques are deposited with the branches which duly deposits the same on the respective due date. For facilitation of collection we have non-operative collection accounts with our bankers. We also have agreements with certain banks for cash management services wherein, after a period of 48 hours our designated account will be credited with the proceeds which are transferred to our centralised bank account. Default Defaults by our customers would be separately intimated and debited to our centralized account. We initiate criminal and civil legal action for cheque dishonours. In addition, we also have a re-deposition system wherein all original cheques that were dishonoured are resubmitted for clearance. At this stage approximately 40% of the dishonoured cheques are cleared. In the case of cheque re-dishonours, we intimate our customers of the said dishonour and we demand payment of the same via a demand draft or via cash. We have also engaged debt recovery agencies to recover debts or seize the assets financed. In the event of continued defaults based on specified guidelines determined by frequency of default we seize the financed products. We also charge penal interest at the rate of 24% to 32% over and above the interest rate charged for the product in case of delayed payment. Our collection efficiencies have also remained high, at above 95 per cent, during the period 2004 to 2005 (Source: Crisil Report).

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BAJAJ AUTO FINANCE LIMITED Our Disbursals During fiscal 2006, we achieved our highest ever disbursals which were Rs. 19,545 million (gross) as against Rs. 14,063 million for fiscal 2005, a growth of 39 per cent over the previous year. Our outstanding loans with interest as on March 31, 2006 was Rs. 19,811 million as against March 31, 2005 where it was Rs. 12,487 million as against Rs.7,724 million as on March 31, 2004. The break-up of our disbursals across our business operations are as hereunder:
Disbursals Six months period ended September 30, 2006 Rs. % of total Million disbursals 6,742 59 Fiscal 2006 Fiscal 2005 Fiscal 2004

Two and Three wheeler vehicles Consumer 2,531 Durables Personal 1,866 Computers Consumer 223 Loans Total 11,362 Disbursals Asset classification

Rs. Million 11,722

% of total disbursals 60

Rs. Million 7,816

% of total disbursals 56

Rs. % of total Million disbursals 4,986 51

22 17 2 100

4,634 2,499 690 19,545

24 13 3 100

4,004 1,608 635 14,064

28 11 5 100

3,585 865 336 9,772

37 9 3 100

Given below are the RBI guidelines for asset classification

Asset Classification Standard Asset The RBI Guidelines The asset in respect of which no default in repayment of principal or payment of interest is perceived and which do not disclose any problem nor carry more than normal risk attached to the business. In case of a loan, where the instalment / interest has remained overdue for a period of 6 months or more and in case of hire purchase / lease asset, where the instalment / rental has become overdue for a period of 12 months or more. An asset, which has been classified as a NPA for a period not exceeding 2 years. An asset, which remains a sub-standard asset for a period exceeding 2 years. An asset, which has been identified as a loss asset by the NBFC or external auditors or by the RBI. It also includes an asset which is adversely affected by a potential threat of non-recoverability due to either erosion in the value of security or non-availability of security or due to any fraudulent act or omission on the part of the borrower.

Non Performing Asset

Sub standard asset Doubtful asset Loss Asset

Asset Quality As on March 31, 2006 and on September 30, 2006, out of the total asset base of Rs. 17,134 million and Rs. 20,258 million respectively, 97% and 96% respectively have been classified as standard assets. 43

BAJAJ AUTO FINANCE LIMITED The following table sets forth the percentage of the Classification of Assets (Gross) of the Company for the last four years: (% to Total Assets)

Classification of Assets Standard Assets Sub-standard Assets Doubtful Assets Loss Assets Gross NPA / Gross Assets Amounts written off
Provisioning and Write-offs

Fiscal 2003 98.99 00.53 00.30 00.18 1.01 00.79

Fiscal 2004 99.05 00.52 00.08 00.35 0.95 00.86

Fiscal 2005 97.85 1.94 00.06 00.15 2.15 1.29

Fiscal 2006 96.66 3.21 00.05 00.08 3.34 1.74

Six months period ended September 30, 2006 95.59 4.22 0.11 0.08 4.41 0.89

For loans, advances and other credit facilities including bills purchased and discounted, the RBIs provisioning norms are attracted once the arrears are for 6 months or more. The provisioning requirements in respect of loans, advances and other credit facilities including bills purchased and discounted are as follows:
Asset Classification Standard Asset Sub standard asset Doubtful asset Nil A general provision of 10% of the total out-standings should be made (a) 100% provision to the extent, which the advance is not covered by the realizable value of the security to which the NBFC has a valid recourse, shall be made. The realizable value is to be estimated on a realistic basis. (b) In addition to item (a) above, depending upon the period for which the asset has remained doubtful, provision to the extent of 20% to 50% of the secured portion (i. e. estimated realizable value of the outstanding) shall be made on the following basis: Period for which the asset is considered doubtful Provisioning

Percentage of provision

Loss Asset

Up to one year 20% From one to three years 30% For more than three years 50% The entire asset shall be written off. If the assets are permitted to remain in the books for any reason, 100% of the outstanding should be provided for.

For hire purchase assets, the total dues (overdue and future instalments taken together) as reduced by, the finance charges not credited to the profit and loss account and carried forward as un-matured finance charges and; the depreciated value of the underlying asset are to be provided for. Explanation: For the purpose of the above, the depreciated value of the asset shall be notionally computed as the original cost of the asset to be reduced by depreciation at the rate of 20% p.a. on a straight line method, in the case of second hand asset, the original cost shall be the actual cost incurred for acquisition of such second hand asset. 44

BAJAJ AUTO FINANCE LIMITED The RBIs provisioning norms that are applicable to us as a hire purchase financing company are as follows:
Asset Classification Standard Asset Sub standard asset Doubtful asset Nil 10% of the net book value 40% of the net book value where any amounts of hire charges or lease rentals are overdue for more than 24 months but up to 36 months 70% of the net book value where any amounts of hire charges or lease are overdue for more than 36 months but up to 48 months 100% of the net book value Provisioning

Loss Asset

Since we are classified as a hire-purchase finance company, we are required to recognize NPA, where any amount of hire charges or lease rentals are overdue for more than 12 months. However, as a matter of abundant caution we recognize NPAs of any amount of hire charge or lease rental that are over due for six months and above. Our Capital Adequacy Ratio The Company has doubled the business volume from fiscal 2003 (Rs. 7,842 million) to fiscal 2005 (Rs. 14,064 million). In fiscal 2006, the Company has crossed disbursement level of fiscal 2005. This has resulted in increase in assets base of Rs. 6,361 million as of fiscal 2003 to Rs. 19,811 million as of March 31, 2006. Our risk weighted asset base has gone up from Rs. 5,867 million as of fiscal 2003 to Rs. 17,165 million as of March 31, 2006.

Particulars

Fiscal 2003

Fiscal 2004

Fiscal 2005

Fiscal 2006

Six months period ended September 30, 2006 24.03%

Capital Adequacy Ratio

Asset liability management

35.24%

32.73%

23.42%

28.12%

NBFC are exposed to asset liability mismatches and interest rate risks. Hence, the RBI has issued certain guidelines for monitoring of asset liability mismatches and interest rate risks for NBFCs. These guidelines have become mandatory from the financial year ended March 31, 2002. The Company, being a NBFC, is exposed to the market risks like short term liquidity, interest rate variations etc. As directed by the Reserve Bank of India, the company has formed the Asset Liability Committee (ALCO). This committee reviews the asset liability mismatches as per the time frames prescribed by the Reserve Bank of India and takes corrective measures wherever warranted. The Company submits periodical returns in the prescribed formats to the Reserve Bank of India on: a) b) c) Structural liquidity (with respect to mismatches on different time frames); Dynamic liquidity (with respect to the estimated mismatches upto a period of 6 months on different time frames); Interest rate sensitivity (with respect to the interest rate variations in the market).

Risk Management We have set up an ALCO in terms of the guidelines issued by the RBI, which monitors asset-liability mismatches, to ensure that there are no imbalances or excessive concentrations on either side of our balance sheet. Our loan portfolio comprises predominantly fixed rate borrowings, which corresponds to fixed rate lending to the customers minimising interest rate variation risk.

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BAJAJ AUTO FINANCE LIMITED Our results of operations depend to a great extent on our net interest income, and volatility in interest rates and other market conditions could adversely impact our business and financial results. Volatility and changes in market interest rates could affect the interest, we earn on our assets, differently from the interest we pay on our liabilities. The difference could result in an increase in interest expense relative to interest income leading to a reduction in net interest income. Interest rates are sensitive to many factors beyond our control, including the RBIs monetary policies, deregulation of the financial sector in India, domestic and international economic and political conditions and other factors. Any volatility in interest rates could adversely affect our business and financial performance. On January 25, 2006, the RBI increased the reverse repo rate, which is the rate at which commercial banks lend funds to the RBI, from 5.25% to 5.5% Although our net interest income is increasing due to our prudent asset and liability management, in a rising interest rate environment, especially if the rise were sudden or sharp, we could be materially adversely affected by the decline in the market value of our government securities portfolio and other fixed income securities and may be required to realize mark to market losses. Additionally, an increase in interest rates may harm the retail loan portfolio, which may adversely impact our business, besides the increase in the cost of funds on our borrowing. We run a credit risk on our lending portfolio Our main business of lending carries an inherent credit risk, which involves inability or unwillingness of a customer or the counterparty to meet their commitments. Credit risk primarily arises in our lending operations from the failure of any party, principally our borrowers, to abide by the terms and conditions of any financial contract with us, principally the failure to make required payments on loans due to us. Though our diversified loan portfolio is managed by personnel with experience in the respective areas and we have in place appropriate Credit Appraisal/Control mechanism and Risk Management System, these procedures may fail. Also certain factors that are beyond our control may increase our credit risk. Any such failures or developments may have negative impact on our working results. Operational Risk This type of risk is broadly defined as the direct or indirect loss due to failure of systems, people or processes, or due to external events. In recent years, size of operations of our Company have increased manifold. Due to increased exposure of company into various product lines and different customer segment, addressing operational risk has gained importance. Realizing the importance of addressing the operational risk, we have instituted series of checks and balances and controls such as we have centralized accounting through appropriate software which automates our accounting and operational transactions at the branches reducing the risk of unreconciled entries, periodical spot checks through appropriate internal audit mechanism and well laid down operating manual combined with external audit reviews. The branch operations are monitored centrally through the system and reports and reasonable checks and balances are enabled through this process. The branches are required to submit periodical returns of transactions entered into as per laid down procedures. For better control, certain operations such as check deposition in some crucial branches are centralized. Dissemination of regulatory and internal policies are made available to users on through appropriate circulars and periodical onsite training to enrich their job knowledge and minimize the operational risk to the extent possible. Treasury Our treasury group manages our balance sheet, including our maintenance of reserve requirements and our management of market and liquidity risk. Under the regulations of the RBI, we are required to maintain a minimum specified percentage, currently 15%, of our outstanding fixed deposits in approved Government securities. As of March 31, 2006 we have invested in such securities. Yields on these investments, as well as yields on our other interest earning assets, are dependent to a large extent on interest rates and to that extent it may impact our result of operations in future.

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BAJAJ AUTO FINANCE LIMITED Funding Our operations have been funded through a combination of equity and debt depending upon the prevailing cost of the debt and our forecast of its future movement. Our debt currently comprises of various instruments like commercial papers, non-convertible debentures, term loans, working capital demand loan for varying periods. The overall cost of debt for the previous three years amounted to 6.33%, 5.72% and 6.06% respectively. The weighted average cost of debt (annualised) for the six months period ended September 30, 2006 was 6.96%. Debt The total funds deployed and combination of the debt and equity for the last four years and the six months period ended September 30, 2006 are as follows: (In Rs. Million)
Years 2002-03 2003-04 2004-05 2005-06 Six months period ended September 30, 2006 Shareholders funds 2,067.42 2,317.90 2,591.42 4,826.98 4,933.84 Debt 2,639.28 3,438.64 6,803.22 10,187.62 13,008.64 Total funds deployed 4,706.70 5,756.54 9,394.64 15,014.60 17,942.48 Debt Equity Ratio 1.28:1 1.48:1 2.63:1 2.11:1 2.64:1

Equity The composition of shareholders funds for the last four years and the six months period ended September 30, 2006 are as follows: (In Rs. Million)

Years 2002-03 2003-04 2004-05 2005-06 Six months period ended September 30, 2006
Competition

Equity 164.90 164.90 164.90 209.94 209.94

Free Reserves 1,902.52 2,153.00 2,426.52 4617.04 4,723.90

Total Shareholders Funds 2,067.42 2,317.90 2,591.42 4,826.98 4,933.84

Our primary competitors are public sector banks, private banks (including foreign banks), co-operative banks, regional rural banks and other non-banking financial companies. Competition in our industry is expected to continue. For more details on this sector please refer to section titled Industry at page 30 of this Letter of Offer. Human Resources As of the date of this Letter of Offer we have 2,174 employees including a host of trainees who manage independent functions and activities of the Company.

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BAJAJ AUTO FINANCE LIMITED The employee attrition rates for the last four years and the six months period ended September 30, 2006 are:

Particulars

Fiscal 2003

Fiscal 2004

Fiscal 2005

Fiscal 2006

Six months period ended September 30, 2006 13%

Employee Attrition Rate

Training

15%

17%

20%

20%

We place special emphasis on the training of our employees to enable them to develop their skills to meet demanding customer services. We focus on an initial learning programme for our trainees as well as continuous learning programmes for all our employees. All newly-hired employees are required to attend an intensive training programme to familiarize them with our business. Compensation and Performance Management Our compensation policy is performance based and we believe it is competitive with industry standards in India. Our compensation packages are adjusted annually based on industry salary correction, compensation surveys and individual performance. From time to time, employees who have met or exceeded performance standards are awarded bonuses. Employee Post-Retirement Benefits Our employees post-retirement benefits include a provident fund and a gratuity. Both the provident fund and the gratuity have been approved by the relevant statutory authorities. All employees earning up to Rs. 6,500 per month are entitled to provident fund benefits as laid down by Indian law. All provident fund contributions are made to Bajaj Auto Limited Provident Fund Trust. Each such employee makes monthly contributions to the plan equal to 12% of the employees basic monthly salary and we contribute an equivalent amount. We have no further obligations under the plan beyond our monthly contributions. We also provide a superannuation scheme for our employees in managerial grade. We make monthly contributions to the plan equal to 15% of the employees basic monthly salary. We have no further obligations under the plan beyond our monthly contributions. In accordance with Indian law, we also provide our employees with a gratuity consisting of a defined contribution retirement plan covering all eligible employees. For this purpose, we have taken a group gratuity policy with the Life Insurance Corporation of India. The policy provides for a lump sum payment to longterm employees at retirement or upon termination of employment due to resignation, death or disability. The amount of the lump sum is based on the employees basic salary and years of employment. Real estate and property Our corporate headquarters is located at C/o. Bajaj Auto Limited, Mumbai - Pune Road, Akurdi, Pune 411 035 from which all our strategic managers excepting the regional and branch managers operate. We currently have 108 branches currently, spread across 20 states in the country with a large concentration of our branches in Maharashtra, Tamil Nadu, Gujarat, Andhra Pradesh and Kerala. We also own residential property in Pune currently given on leave and license to Bajaj Allianz Life Insurance Company Limited. Insurance We maintain insurance coverage on all our assets located at our head office and our branch premises against fire, earthquake and related perils. We also maintain insurance against burglaries at our head office and our branch offices. Further we maintain insurance against loss by virtue of riots, strikes or terrorist activities of any money that in transit and money that is in safes. Our insurance policies are generally for one year terms.

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BAJAJ AUTO FINANCE LIMITED

REGULATIONS AND POLICIES

We are an NBFC eligible to accept public deposits and are sub-classified by the RBI as a hire purchase finance company based on our principal activity as evidenced from our assets/income pattern. Our business activities are governed by the RBI regulations applicable to deposit accepting NBFCs. Following are the significant regulations that affect our operations: Regulations issued by the RBI Capital Adequacy requirements On and from March 31, 1999, every NBFC is required to maintain a minimum capital ratio, consisting of Tier I and Tier II capital, of twelve per cent, of its aggregate risk weighted assets and of risk adjusted value of off-balance sheet items. Further the total of Tier II capital, at any point of time, shall not exceed one hundred per cent of Tier I capital Tier I Capital means, owned fund as reduced by investment in shares of other NBFCs and in shares, debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group exceeding, in aggregate, ten per cent of the owned fund. Owned Funds means, Paid up equity capital, preference shares which are compulsorily convertible into equity, free reserves, balance in share premium account; capital reserve representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of assets; less accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any. Tier II Capital means to include the following a) preference shares other than those which are compulsorily convertible into equity; b) revaluation reserves at discounted rate of fifty five per cent; c) general provisions and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses, to the extent of one-and-one-fourth per cent of risk weighted assets; d) hybrid debt capital instruments; and e) subordinated debt, to the extent the aggregate does not exceed Tier-I capital. Hybrid debt means, capital instrument, which possess certain characteristics of equity as well as debt. Subordinated debt means a fully paid up capital instrument, which is unsecured and is subordinated to the claims of other creditors and is free from restrictive clauses and is not redeemable at the instance of the holder or without the consent of the supervisory authority of NBFC authority. The book value of such instrument is subjected to discounting as prescribed.

Prudential Norms for Asset Classification The Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 (Prudential Norms Directions) specify that every NBFC shall, after taking into account the degree of well defined credit weaknesses and extent of dependence on collateral security for realization, classify its lease/ hire purchase assets, loans and advances and any other forms of credit into the following classes, namely: Standard asset, i.e., the asset in respect of which no default in repayment of principal or payment of interest is perceived and which do not disclose any problem nor carry more than normal risk attached to the business; Sub-standard asset, i.e., (a) an asset, which has been classified as non-performing asset for a period not exceeding 18 months; (b) an asset where the terms of the agreement regarding interest and / or principal have been renegotiated or rescheduled after commencement of operations, until the expiry of one year of satisfactory performance under the renegotiated or rescheduled or rescheduled terms; Doubtful asset, i.e., (a) a term loan, or (b) a lease asset, or (c) a hire purchase asset, or (d) any other asset which remain a sub-standard asset for a period exceeding 18 months; 49

BAJAJ AUTO FINANCE LIMITED Loss asset, i.e., (a) an asset which has been identified as loss asset by the NBFC or its internal or external auditor or by the RBI during the inspection of the NBFC, to the extent that it is not written off by the NBFC; and (b) an asset which are adversely affected by a potential threat of non-recoverability due to either erosion in the value of security or non availability of security or due to any fraudulent act or omission on the part of the borrower.

An asset is classified as a non performing asset when: (a) (b) (c) (d) (e) an asset, in respect of which, interest has remained overdue for a period of six months or more; a term loan inclusive of unpaid interest, when the instalment is overdue for a period of six months or more or on which interest amount remained overdue for a period of six months or more; a demand or call loan, which remained overdue for a period of six months or more from the date of demand or call or on which interest amount remained overdue for a period of six months or more; a bill which remains overdue for a period of six months or more; the interest in respect of a debt or the income on receivables, under the head other current assets in the nature of short term loans/ advances, which facility remained over due for a period of six months or more; any dues on account sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of six months or more; the lease rental and hire purchase instalment, which has become overdue for a period of twelve months or more; in respect of loan, advances and other credit facilities (including bills purchased and discounted), the balance outstanding under the credit facilities (including accrued interest) made available to the same borrower/ beneficiary when any of the above credit facilities become non performing asset; In the case of lease and hire purchase transaction, an NBFC may classify each such account on the basis of its record of recovery. The Prudential Norms Directions also require every NBFC to make provisions against sub-standard assets, doubtful assets and loss assets, after taking into account the time lag between an account becoming non-performing, its recognition as such, the realization of the security and the erosion over time in the value of security charged. Such provisions are required to be made as provided below: Loans advances and other credit facilities including bills purchased and discounted The provisioning requirement in respect of loans advances and other credit facilities including bills purchased and discounted is as under: Loss assets: The entire asset is required to be written off if the assets are permitted to remain in the books for any reason, 100 per cent of the outstanding should be provided for; Doubtful assets: (a) 100 per cent provision to the extent to which the advance is not covered by the realizable value of the security to which the NBFC has a valid recourse is required to be made. The realizable value is to be made estimated on a realistic basis; (b) In addition, to item a) above, depending on the period for which the asset has remained doubtful, provision to the extent of 20 per cent to 50 per cent of the secured portion (i.e., estimated realisable value of the outstanding) is required to be made as follows. Accordingly, if the asset has been considered doubtful for upto one year, provision to the extent of 20 per cent of the secured portion is required to be made; if the asset has been considered doubtful for one to three years, provision to the extent of 30 per cent of the secured portion is required to be made; and if the asset has been considered doubtful for more than three years, provision to the extent of 50 per cent of the secured portion is required to be made. Sub-standard assets: A general provision of 10 per cent of the total outstanding is required to be made. 50

(f) (g) (h)

BAJAJ AUTO FINANCE LIMITED Lease and hire purchase assets In respect of hire purchase assets, the total dues (overdues and future instalments taken together) as reduced by, (a) the finance charges not credited to the profit and loss account and carried forward as unmatured finance charges; and (b) the depreciated value of the underlying asset, is required to be provided for. For the purpose of the above, i) the depreciated values of the asset shall be notionally computed as the original cost of the asset to be reduced by depreciation at the rate of 20% per annum on a straight line method and ii) in the case of second hand asset, the original cost shall be the actual cost incurred for acquisition of the second hand asset. In addition, in respect of leased and hire purchase asset, following provisions are required to be made; (a) (b) (c) (d) (e) where the amount of hire charges or lease rentals is overdue for up to 12 months, no provision is required to be made; sub-standard assets: where any amount of hire charges or lease rentals are over due for more than 12 months but up to 24 months, 10 per cent of the net book value; doubtful assets: where any amount of hire charges or lease rentals are overdue for more than 24 months but up to 36 months, 40 per cent of the net book value; and where such amount of hire charges or lease rentals are overdue for more than 36 months but up to 48 months, 70 per cent of the net book value; loss assets: where any amount of hire charges or lease rentals are overdue for more than 48 months, 100 per cent of the net book value.

On expiry of a period of 12 months after the due date of the last instalment of hire purchase/ leased asset, the entire net book value is required to be fully provided for. Asset Liability Management The RBI has prescribed the Guidelines for Asset Liability Management (ALM) System in NBFCs (ALM Guidelines) that are applicable to all NBFCs meeting the criteria of asset base of Rs. 1 billion or more or holding public deposits of Rs. 200 million or more. The ALM system resets on the functioning of ALM information systems within the NBFC, ALM organization including Asset Liability Committee (ALCO) and ALM support groups, and the ALM process including liquidity risk management, management of marketing risk, funding and capital planning, profit planning and growth projection, and forecasting/ preparation of contingency plans. It is provided that the management committee of the Board of Directors or any other specific committee should oversee the implementation of the system and reviews its functioning periodically. In case of structural liquidity, the negative gap (i.e. where outflows exceed inflows) in the 1 to 30/ 31 days time-bucket should not exceed the prudential limit of 15% of outflows of each time-bucket and the cumulative gap up to one year period should not exceed 15% of the cumulative cash outflows up to one year period. In case these limits are exceeded, the measures proposed for bringing the gaps within the limit, should be shown by a footnote in the relevant statement. Maintenance of liquid assets The RBI has prescribed guidelines directing every NBFC to invest and continue to invest in unencumbered approved securities valued at the price not exceeding the current market price of such securities an amount which shall, at the close of business on any day be not less than ten percent in approved securities and the remaining in unencumbered term deposits in any scheduled commercial bank, and the aggregate of which shall not be less than fifteen per cent of the public deposit outstanding at the last working day of the second preceding quarter. Acceptance of deposits The RBI has prescribed the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 (Public Deposit Directions) which regulate the acceptance of deposits by NBFCs. The 51

BAJAJ AUTO FINANCE LIMITED Public Deposit Directions make provisions, inter alia, in respect of the credit ratings, period, quantum and rate of interest for such public deposits. According to the Public Deposit Directions, a hire purchase finance company (i) having Net Owned Fund (NOF) of Rs. 2.5 million or more, and (ii) complying with all the prudential norms with capital adequacy ratio of not less than 15 per cent as per the last audited balance sheet, may accept, or renew public deposit, together with the amounts remaining outstanding in the books of the company as on the date of acceptance or renewal of such deposit, not exceeding one and a half times of its NOF or public deposit up to Rs. 100 million, whichever is lower. Similarly, a hire purchase finance company (i) having NOF of Rs. 2.5 million or more, (ii) complying with all the prudential norms, and (iii) having minimum investment grade credit rating, may accept or renew public deposit, together with the amounts remaining outstanding in the books of the company as on the date of acceptance or renewal of such deposits, not exceeding four times of its NOF. The acceptance of deposit by an NBFC, in relation to its tenure and the rate of interest thereon is also regulated. The deposit accepted or renewed cannot be repayable on demand nor the tenure of deposit be less than 12 months nor more than 60 months. Further on and from March 2003, the rate of interest cannot exceed 11% for deposits up to three years. Payment of brokerage by NBFC to its agents is regulated. A NBFC cannot pay to its broker on public deposit collected by or through him, brokerage, commission, incentive or any other benefit by what ever name called, in excess of 2% of the deposit so collected and expenses by way of reimbursement on the basis of elative bills produced by him in excess of 0.5% of the deposit so collected. Supervision by the RBI Under the provisions of the Reserve Bank of India (Non Banking Financial Companies) Returns Specifications 1997, every NBFC is required to submit certain returns containing specific information to the RBI on a quarterly, half yearly and on an annual basis, in the format prescribed by the RBI. Further under section 45N of the Reserve Bank of India Act, 1934, the RBI may cause an inspection to be made of any NBFC if it considers it necessary or expedient. KYC obligations The RBI has extended the Know Your Customer (KYC) guidelines to NBFCs and advised all NBFCs to adopt the same with suitable modifications depending upon the activity undertaken by them and ensure that a proper policy framework on KYC and Anti-Money Laundering measures is put in place. The KYC policies are required to have the following key elements, namely, customer acceptance policy, customer identification procedures, monitoring of transactions and risk management, adherence of KYC guidelines by the persons authorized by NBFCs including brokers/ agents, due diligence of persons authorized by NBFCs including brokers/ agents, customer service in terms of identifiable contact with persons authorized by NBFCs including brokers/ agents. Applicable Foreign Direct Investment Regime Under the guidelines prescribed by the Ministry of Finance, Government of India, foreign direct investment in the non banking finance companies (as defined therein) such as ours, is under the automatic route subject to compliance by the NBFC with applicable RBI guidelines. The minimum capitalization norms have been prescribed as follows: If foreign direct investment is less than 51 per cent, USD 0.5 million to be brought in upfront; If foreign direct investment is more than 51 per cent and up to 75 per cent, USD 5 million to be brought in upfront; and If foreign direct investment is more than 75 per cent and up to 100 per cent, USD 50 million, of which US$ 7.5 million to be brought in upfront and the balance in 24 months.

Foreign investors can set up 100 per cent operating subsidiaries without the condition to disinvest a minimum of 25 per cent of Indian entities, subject to bringing in USD 50 million. 52

BAJAJ AUTO FINANCE LIMITED Shops and Establishments Acts The Company is governed by the various Shops and Establishments Acts as applicable in the States where it has branches. These Acts regulate the conditions of work and employment in shops and commercial establishments and generally prescribe obligations in respect of, inter alia, registration, opening and closing hours, daily and weekly working hours, holidays, leave, health and safety measures and wages for overtime work. For details of the Companys registration under the applicable Shops and Establishments Acts, please refer to the chapter Government and Other Approvals on page 144 of this Letter of Offer. Employment Related Regulations The Company is governed by the provisions of the Employees State Insurance Act, 1948 and is required to make periodic contributions under the same. The employees of the Company are covered under the Bajaj Auto Limited Provident Fund and the Bajaj Auto Limited Employees Superannuation Scheme. Fiscal regulations In accordance with the Income Tax Act, 1961 any income earned by way of profits by a company incorporated in India is subject to tax levied on it in accordance with the tax rate as declared as part of the annual Finance Act. The Company, like other companies, avails of certain benefits available under the Income Tax Act, 1961. For details of the tax benefits, please refer to the Statement of Tax Benefits on page 25 of this Letter of Offer. Other regulations In addition to the above, the Company is required to comply with the provisions of the Companies Act, 1956, the Foreign Exchange Management Act, 1999, various tax related legislations and other applicable statutes.

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BAJAJ AUTO FINANCE LIMITED

HISTORY OF OUR COMPANY AND OTHER CORPORATE MATTERS

Our Company was incorporated on March 25, 1987 as Bajaj Auto Finance Private Limited. It became a deemed public limited company by virtue of section 43A of the Companies Act, 1956 with effect from October 20, 1987, and thereafter got converted into a public limited company with effect from September 24, 1988. We are registered with the RBI as a NBFC with effect from March 5, 1998. The Equity Shares of our Company were first listed on June 7, 1994 on BSE. Thereafter the shares were listed on the NSE with effect from April 1, 2003. On July 25, 2003 the Company in general meeting granted consent to voluntarily delist its shares from the Pune Stock Exchange Limited and the Stock Exchange, Ahmedabad. As of the date of filing this Letter of Offer, our Promoters hold 8,713,960 Equity Shares of our Company, representing 41.50% of our pre-Issue equity (issued capital) and the promoter group holds 6.24% Equity Shares of our Company. As of like date, out of the 9 Directors on our Board, 5 are non-executive directors, one is a managing director and 3 are non-executive independent directors. Objects of our Company Our main objects as contained in our Memorandum of Association include: 1. To finance industrial enterprises by way of advance, deposit or lend money, securities, and properties to or with any Company, body corporate, trust, firm, person or association whether falling under the same management or otherwise, with or without security and on such terms as may be determined from time to time, and to carry on and undertake the business of finance and investment and to provide venture capital, seed capital, loan capital and to participate in equity/preference Share Capital or to give guarantees on behalf of the Company in the matter and to promote Companies engaged in Industrial and trading business and to act as Financial Consultants, Management Consultants, Brokers, Dealers, Agents and to carry on the business of share broking, money broking, exchange broking, bill broking and general brokers for shares, debentures, debenture-stock, bonds, units, obligations, securities, commodities, bullion currencies and to manage the funds of any person, firm, body corporate or trust by investment in various avenues like Growth Fund, Income Fund, Risk Fund, Tax Exempt Funds, Pension/Superannuation Funds and to pass on the benefits of portfolio investments to the investors as dividends, bonus, interest, etc. To carry on the business as an Investment Company and to underwrite, sub-underwrite, to invest in, and acquire by gift or otherwise and hold, sell, buy or otherwise deal in shares, debentures, debenture-stocks, bonds, units, obligations and securities issued or guaranteed by Indian or Foreign Governments, States, Dominions, Sovereigns, Municipalities or Public Authorities or Bodies and shares, stocks, debentures, debenture-stocks, bonds, obligations and securities issued or guaranteed by any Company, corporation, firm or person whether incorporated or established in India or elsewhere and to manage investment pools, mutual funds, shares, stocks, securities, finance subject to necessary Government approval. However, the Company shall not carry on any Chit Fund activities. To carry on the business of buying, selling, leasing, lease broking, letting on hire, hire-purchase or on easy payment system household and office furniture, domestic or business appliances, computers, tabulators, addressing machine and other sophisticated office machinery, installation fitting, machinery, motor cars, taxi-cabs, mopeds, scooters, motor cycles, 3-wheelers, auto-rickshaws, automobiles, tramcars, motor lorries, tractors, earthmoving machinery, wagons, cycles, bicycles, coaches, garages and all other vehicles drawn by motor, steam, oil, petroleum, electricity or any mechanical or other power or device, agricultural implements and machinery , air-ships, aeroplanes and helicopters, tools, plants, implements, utensils, apparatus and requisites and accessories, furniture, wireless and television receivers, telephones, telex, teleprinters, or other apparatus, ships, dredgers, barges and containers and to carry on the business of hire purchase of movable properties of any kind, including machinery, plant of all kinds to buy, sell, alter, repair, exchange and deal in and finance the sale of furniture, apparatus, machinery, materials, goods and articles, to hire out or sell any of the same on hire purchase system.

2.

3.

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BAJAJ AUTO FINANCE LIMITED 3A. Subject to the provisions of the Insurance Regulatory & Development Authority Act, 1999 and other enactments, as amended from time to time and the rules and regulations framed thereunder, to undertake, carry on and transact the business of soliciting or procuring insurance business as an insurance agent and/or to act as an insurance intermediary or broker in respect of general insurance, life insurance or reinsurance business or to act as a composite broker and/or to carry on the business of distribution of insurance products and/or to act as an insurance consultant and/or to act as surveyors and loss assessors. Changes in our Memorandum of Association
Date of shareholder approval July 31, 1987 Changes Change in the authorized share capital from Rs. 10 million divided into 1 million Equity Shares of Rs. 10 each to Rs. 150 million divided into 15 million Equity Shares of Rs. 10 each, by the creation of 14 million Equity Shares of Rs. 10 each. Change in the authorized share capital from Rs. 150 million divided into 15 million Equity Shares of Rs. 10 each to Rs. 200 million divided into 20 million Equity Shares of Rs. 10 each, by the creation of 5 million Equity Shares of Rs. 10 each. The main objects of the Company were altered to include new clause 3A as under: Subject to the provisions of the Insurance Regulatory & Development Authority Act, 1999 and other enactments, as amended from time to time and the rules and regulations framed thereunder, to undertake, carry on and transact the business of soliciting or procuring insurance business as an insurance agent and/or to act as an insurance intermediary or broker in respect of general insurance, life insurance or reinsurance business or to act as a composite broker and/or to carry on the business of distribution of insurance products and/or to act as an insurance consultant and/or to act as surveyors and loss assessors. Change in the authorized share capital from Rs. 200 million divided into 20 million Equity Shares of Rs. 10 each to Rs. 500 million divided into 50 million Equity Shares of Rs. 10 each, by the creation of 30 million Equity Shares of Rs. 10 each.

April 2, 1993

July 27, 2001

January 12, 2006

The details of the capital raised by our Company are given in the section entitled Capital Structure on page 14 of this Letter of Offer. Dividends The following are the dividend payouts in the last five years by our Company In Rs. Million
Financial Year Rate FY 2006 FY 2005 FY 2004 FY 2003 FY 2002
* inclusive of dividend tax wherever applicable.

Dividend Amount* 95.75 141.02 111.62 83.71 74.21

40% 75% 60% 45% 45%

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BAJAJ AUTO FINANCE LIMITED

OUR MANAGEMENT
Board of Directors The following table sets forth details regarding our Board as on September 30, 2006

Name of the Director/ Fathers name/ Residential Address/ Occupation Rahul Bajaj, Chairman S/o. Late Kamalnayan Bajaj Bajaj Vihar Colony, Mumbai-Pune Road, Akurdi, Pune - 411 035. Industrialist Madhur Bajaj, Director S/o. Ramkrishna Bajaj Bungalow No. 3, Bajaj Vihar Colony, Mumbai-Pune Road, Akurdi, Pune - 411 035. Business Executive Rajiv Bajaj Director S/o. Rahul Bajaj Bajaj Vihar Colony, Mumbai-Pune Road, Akurdi, Pune - 411 035. Company Executive

Age (years) 68

Nationality Indian 1. 2. 3. 4. 5. 6. 7.

Other Directorships Held Bajaj Auto Ltd. (Chairman) Mukand Ltd. (Chairman) Bajaj Allianz General Insurance Co. Ltd. (Chairman) Bajaj Allianz Life Insurance Co. Ltd. (Chairman) Kamalnayan Investment & Trading Pvt. Ltd. Rahul Securities Pvt. Ltd. Indian School of Business (Member, Executive Board)

54

Indian

1. 2. 3. 4. 5. 6. 7. 8. 9.

Bajaj Auto Ltd. Bajaj Auto Holdings Ltd. Bajaj Electricals Ltd. Maharashtra Scooters Ltd. Fusion Investments & Financial Services Ltd. Econium Investments & Finance Ltd. Catalyst Finance Ltd. Madhur Securities Pvt Ltd. Lineage Investments Ltd.

39

Indian

1. 2.

Bajaj Auto Ltd. Bajaj Auto Holdings Ltd.

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BAJAJ AUTO FINANCE LIMITED

Sanjiv Bajaj Director S/o. Rahul Bajaj Bajaj Vihar Colony, Mumbai-Pune Road, Akurdi, Pune - 411 035. Company Executive DS Mehta Director S/o. Shantilal Mehta 301/302, Gora Gandhi Apts, 3, Laburnum Road, Gamdevi, Mumbai - 400 007. Company Executive 37 Indian 1. 2. 3. 4. 5. 6. Bajaj Auto Ltd. Bajaj Allianz General Insurance Co. Ltd. Bajaj Allianz Life Insurance Co. Ltd. Bachhraj Factories Pvt. Ltd. Bajaj Auto Holdings Ltd. Maharashtra Scooters Ltd.

70

Indian

Ranjan Sanghi Independent Director S/o. Suraj Prakash Sanghi Flat No. 801, Surajprakash Bldg., 86, Shankar Ghanekar Marg, Mumbai - 400 025. Businessman

62

Indian

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

Mukand Ltd. Maharashtra Scooters Ltd. Bajaj Sevashram Pvt. Ltd. Bachhraj & Co. Pvt. Ltd. Bajaj Auto Holdings Ltd. Bajaj Hindustan Ltd. Jamnalal Sons Pvt. Ltd. Jeewan Ltd. Sikkim Janseva Pratisthan P. Ltd. Janmabhoomi Newspapers Education Foundation Niche Financial Services Pvt. Ltd. Bajaj Auto Ltd. Bhoopati Shikshan Pratisthan Mahakalp Arogya Pratisthan Hincon Holdings Ltd. Benchmark Asset Management Co. Pvt. Ltd. Bharatiya Vidya Bhavan (Australia) Bharatiya Vidya Bhavan (Singapore) Suraj Sanghi Finance Ltd. G.P. Electronics Ltd. Kemp & Co. Ltd. Amzel Automotives Ltd. HDFC Trustee Company Ltd. Sah & Sanghi Auto Agencies Pvt. Ltd. Project Automobiles (Bombay) Pvt. Ltd. Mohan Three Wheelers Pvt. Ltd. J D Jones & Co (Bombay) Pvt. Ltd. Bombay Auto Ancillary & Investment Pvt. Ltd. Auto Ancillary Manufacturers SDN BHD, Kuala lampur. Spirax Marshall Pvt. Ltd. Kapil Auto Pvt. Ltd. Krishna Sanghi Investments Pvt. Ltd. Akhil Sanghi Finance Pvt. Ltd. Rajesh Sanghi Auto Traders Pvt. Ltd. Tyresoles Concessionaires Pvt. Ltd. Rama Sanghi Auto Pvt Ltd Tyresoles (Silvassa) Pvt. Ltd.

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BAJAJ AUTO FINANCE LIMITED

20. 21. 22. 23. 1. 2. 3. 4. 5. 6. 7. 8. Navtech E-Solutions Pvt. Ltd. Borax Morarjee Ltd Morarjee Textiles Limited Six Sigma Gases India Pvt. Limited Gangtok Auto Works Pvt. Ltd. Hotel Tashi Delek Ltd. Denzong Cinema Ltd. Himalayan Auto Works Pvt. Ltd. Cindrella Hotels Ltd. Sikkim Investment Co. Pvt. Ltd. Siliguri Auto Works Pvt. Ltd. (Managing Director) Calcutta Auto Works Pvt. Ltd.

Rajendra Lakhotia Independent Director S/o. Motilal Lakhotia C/o. Gangtok Auto Works Pvt. Ltd., National Highway, Gangtok - 737 001. Sikkim. Businessman Naresh Patni Independent Director S/o. Bansilal Patni 49, Vihar Apts, Ramdaspeth, Nagpur - 440 010 Businessman Dipak Poddar Managing Director S/o. Late Jagdish Prasad Poddar Brij Kutir, 17th Floor, Rungta Lane, Off Nepean Sea Road, Mumbai - 400 026. Industrialist

56

Indian

47

Indian

1. 2.

Umesh Marketing Ltd. Umesh Properties Pvt. Ltd.

63

Indian

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Wearology Ltd. Monotona Securities Ltd. Monotona Tyres Ltd. Suvijay Exports Ltd. VIP Industries Ltd. Bachraj Factories Pvt. Ltd. GTL Ltd. Citron Finlease Pvt. Ltd. Knitrite Apparelco Ltd. Bajaj Allianz General Insurance Co. Ltd. Saphire Advisors Pvt. Ltd. Makara Real Estate Ltd.

Our Chairman is the father of two of our directors viz. Rajiv Bajaj and Sanjiv Bajaj. Madhur Bajaj and our Chairman are cousins. Brief biography of our Directors Rahul Bajaj is an Honors graduate in Economics and Law with an MBA from Harvard Business School. He has been associated with the Company as its Chairman since inception. He is also the Chairman of BAL, the flagship company of Bajaj Group and has the distinction of leading Bajaj Auto Ltd., to its present status from a very small beginning. He is associated with a number of trade and industry organisations at a national and an international level, including having been the President of Confederation of Indian Industry twice. The Government of India has conferred on him the prestigious Padma Bhushan in March, 2001. He has been elected to the Upper House of Parliament (Rajya Sabha) from Maharashtra in June 2006. 58

BAJAJ AUTO FINANCE LIMITED Madhur Bajaj is a commerce graduate from Sydenham College, Mumbai and an MBA from the Institute of Management Development, Lausanne, Switzerland. He has been associated with the Company as a Director since 1990. He is also the Vice Chairman of Bajaj Auto Limited. He was the Chairman of Confederation of Indian Industry (Western Region) and its present National Council member. He is also the Vice President of Mahratta Chamber of Commerce, Industries and Agriculture, the apex industries association of Pune. Rajiv Bajaj is a B.E.(Mech.), M.Sc. (MSE). He has extensive experience in Bajaj Auto Ltd and is now leading the technological, product and marketing re-orientation of BAL. He is currently also the Managing Director of BAL. He has been associated with the Company as a Director since 1994. Sanjiv Bajaj is a B.E. (Mech), M.Sc. (MSE), MBA (Harvard). He is currently also the Executive Director of Bajaj Auto Ltd and heads the International Business, Finance, Secretarial and IT functions at BAL. He has been associated with the Company as a Director since 2005. DS Mehta is a B.Com. (Hons), F.C.A., A.C.S. He has been associated with the Bajaj Group companies since 1966 and he is currently also the Whole-time Director of BAL. He has more than 40 years experience in corporate law, taxation, finance and investment. He has been associated with the Company as a Director since 1990. Ranjan Sanghi is a B.Com., LL.B. He has extensive experience in finance, marketing, automobiles and other fields. He was the member of Local Advisory Board of Deutsche Bank for two years. He was the President of Western India Automobiles Association, Mumbai during 1990-91. He has been associated with the Company as a Director since inception. Rajendra Lakhotia is a B.A. (Hons) from St. Stephens College, Delhi University. He has wide experience in automobiles and tourism business. He is associated with a number of social and charitable organisations. He has been associated with the Company as a Director since its inception. Naresh Patni is a B.Sc., B.E. (Civil). He has extensive experience in finance and marketing. He also has a wide and long experience in the professional functions of trade and commerce associations. He is actively associated with a number of socio-economic and cultural organizations. He is an Executive Director of The Wardhaman Urban Co-op. Bank Ltd. He has been associated with the Company as a Director since 1999. Dipak Poddar is a B.Sc. (Hons.), SB & SM (MIT), educated at Massachusetts Institute of Technology, USA. He was previously with Golden Tobacco Company Limited where he was the President and Director General. He has experience of over three decades in finance, automobiles, garment exports, precision engineering and other areas. He has been the Managing Director of the Company since March 31, 1987. Terms of appointment of our Directors Managing Director Dipak Poddar has been our Managing Director since March 31, 1987, and his appointment is periodically renewed for a term of five years at a time. He has been appointed as Managing Director for a fresh term of five years with effect from April 1, 2005, on the following terms and conditions: 1. Salary: Rs. 0.1 million per month, with such annual increments / increases as may be decided by the Board of Directors from time to time. 2. Commission: Payable for each financial year, subject to such ceilings as may be set out in the Companies Act, 1956 and subject to such ceiling as may be fixed by the Board of Directors from time to time. The amount of commission shall be payable after the annual accounts are approved by the Board of Directors and adopted by the shareholders.

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BAJAJ AUTO FINANCE LIMITED 3. Perquisites: (i) (ii) Companys contribution to Provident Fund and Superannuation Fund to the extent these either singly or put together are not taxable under the Income Tax Act. Gratuity at the rate of one months salary for each year of completed service.

(iii) House Rent Allowance: 50% of salary. (iv) Expenses on Gas, Electricity, Water and furnishing subject to a ceiling of 10% of the salary of the Managing Director. (v) Reimbursement of medical expenses incurred by himself and his family subject to a ceiling of one month salary in a year or three months salary over a period of 3 years.

(vi) Reimbursement of actual travelling expenses for proceeding on leave to any place in India and return therefrom once in a year in respect of himself and his family. (vii) Reimbursement of fees of clubs subject to a maximum of two clubs. These will not include admission and life membership fees. (viii) Personal Accident Insurance policy and contribution to Employee Deposit Linked Insurance Scheme as per Company rules. (ix) (x) (xi) Free use of Companys car for official as well as for private purposes. Reimbursement of telephone charges. However, personal long distance calls shall be billed by the Company to the Managing Director. One months earned leave with full pay and allowances in a year which may be accumulated for three months. Encashment of unavailed leave will be permitted.

(xii) Cost of insurance cover against the risk of any financial liability or loss because of any error of judgment, as may be approved by the Board of Directors from time to time. (xiii) Reimbursement of entertainment expenses incurred in the course of business of the Company. (xiv) Subject to any statutory ceiling/s, the Managing Director may be given any other allowances, perquisites, benefits and facilities as Board of Directors from time to time may decide. 4. Valuation of perquisites: Perquisites shall be valued as per the provisions of the Income Tax Rules, wherever and in the absence of any such rules shall be valued at actual cost. 5. Minimum Remuneration: The remuneration by way of salary and perquisites as set out above, shall be paid as minimum remuneration even in case of absence or inadequacy of profits in any financial year during the tenure of the Managing Director, subject to the limits specified in Schedule XIII to the Companies Act, 1956, as amended from time to time. For the purpose of computation of minimum remuneration, the following shall not be included: a. b. 6. Contribution to Provident and Superannuation Funds referred to in para 3(i) above. Gratuity payable as per para 3(ii) to the extent of half a months salary for each completed year of service. applicable,

The terms and conditions of the said appointment and / or agreement may be altered and varied from time to time by the Board as it may, in its discretion, deem fit within the maximum amount payable to the Managing Director in accordance with the provisions of the Companies Act, 1956 or any amendments made therein or with the approval of the Central Government, if required. 60

BAJAJ AUTO FINANCE LIMITED 7. Unless revised at any time during the tenure, the amount of commission on net profits payable to Shri Dipak Poddar shall be limited to an amount equivalent to 100% of the annual salary for the relevant financial year.

Borrowing Powers The shareholders of the Company have, by their resolution dated July 30, 2004 authorised the Board to borrow an amount upto Rs. 20,000 million. Corporate Governance There are three Board Level Committees and one Management Level Committee in our Company, which have been constituted and function in accordance with the relevant provisions of the Companies Act, 1956, the Listing Agreement and the regulations made by the RBI. These are the (i) Audit Committee, (ii) Remuneration Committee, (iii) Shareholders/Investor Grievance Committee and the Asset Liability Management Committee. A brief on each Committee, its scope, composition and meetings for the current year is given below: Audit Committee The terms of reference of the Audit Committee apart from those specified in the Listing Agreement with the Stock Exchanges broadly pertain to review of business practices, review of investment policies, review of compliances and review of systems and controls. The Audit Committee of Directors consists of three Non-executive Directors viz., Ranjan Sanghi as Chairman of the Committee and Naresh Patni and DS Mehta as members. Remuneration Committee The terms of reference of the Remuneration Committee in brief pertain to determining the companys policy on and approve specific remuneration packages for executive directors after taking into account financial position of the company, trend in the industry, appointees qualification, experience, past performance, past remuneration, interest of the company and shareholders etc. The Remuneration Committee consists of three Non-executive Directors viz., Ranjan Sanghi as Chairman of the Committee and Rajendra Lakhotia and Naresh Patni as members. Shareholders/Investors Grievance Committee The Shareholders / Investors Grievance Committee of Directors is headed by Ranjan Sanghi, a non-executive director. The other Members of the Committee are Naresh Patni and DS Mehta. Asset-Liability Management Committee The Asset-Liability Committee set up in terms of the guidelines issued by the Reserve Bank of India, monitors the Asset-Liability mismatches to ensure that there are no imbalances or excessive concentrations on either side of the Balance sheet. SEBI has advised us to comply with the spirit of the Clause 49 of the Listing Agreement and have 50% of the Board as independent directors. We will take up the matter for consideration at our next Board meeting. Shareholding of Directors Our Directors are not required to hold any qualification shares under our Articles of Association. The shareholding of our Directors are given below:

Name Rahul Bajaj Madhur Bajaj Ranjan Sanghi Rajendra Lakhotia Dipak Poddar

No. of Shares held 10,000 10,000 24,000 84,200 1,00,000

61

Percentage to total paid-up Capital 0.05 0.05 0.11 0.40 0.48

BAJAJ AUTO FINANCE LIMITED Changes in our Board of Directors during the last three years
Financial Year 2004-05 Name of the Director Mr. Sanjiv Bajaj Date of Appointment / Change January 18, 2005 Reason for change Appointed as an Additional Director by the Board of Directors Appointed as a Director at the 18th Annual General Meeting Re-appointed as Managing Director for a fresh term of 5 years with effect from 1 st April, 2005 to 31 st March, 2010 (AGM Resolution dated July 15, 2005)

July 15, 2005 2005-06 Mr. Dipak Poddar April 1, 2005

Key Managerial Personnel The details of our key managerial personnel are as under:
Name Age years Designation Qualifications Previous Employment(s) Total Relevant Experience Experience (years) (years) Gross Contracted Salary for Fiscal 2006 (in Rs.) March 31, 3,835,556 1987 April 17, 1989 5,736,420 Date of Joining

Dipak Poddar

63

Managing Director President

CS Ravindran*

54

B.Sc. (Hons), SB & SM (MIT, USA) B.Sc., ACA

Golden Tobacco Co. Ltd. Goldstar Holding & Industries Ltd, Midwest Leasing Ltd, Kirloskar Electric Co Ltd, Canadian Met Chem Consultants, Price Waterhouse Sahm Technologies LLC, UAE, IDBI Bank, SSKI Investor Services (P) Ltd, ICICI Infotech Services Ltd., ICICI Bank, State Bank of India ICICI Bank, Transamerica Apple Distribution Finance Pvt Ltd, Bajaj Auto Ltd, Usha International Ltd Citifinancial Consumer Finance India Limited, GMAC Financial Services India Ltd, Alpic Finance Ltd, 20th Century Finance Corporation Ltd. TVS Finance & Services Ltd, Times of Money, Citibank NA, Wipro Ltd. Corporate Database (India) Pvt Ltd, Bajaj Auto Ltd, Eicher Motors Ltd, Kalyani Brakes Ltd

31

19

31

23

Neeraj B Bhai

51

Vice M.Sc., President MTech Information Technology

28

28

August 11, 2005

1,656,294

V Karunakaran

45

Vice President Marketing (Bajaj Products) Vice President Marketing (Consumer Finance)

MA

23

23

July 11, 2005

2,080,905

Adarsh Kumar

36

B A, PGDBM

12

12

March 06, 2006

200,086

Kannan Narayanswamy

34

Head Collection & Risk Chief Finance Officer

B.Com., ACA, AICWA BA, CA

10

November 1, 2006

NA

Pankaj B Thadani

48

23

22

November 7 , 2006

NA

62

BAJAJ AUTO FINANCE LIMITED

Suhas Patwardhan 4 5 Company Secretary B.Com., LLB, MPM, FCS, PGDBM Kalyani Sharp India Limited, Venkateshwara Hatcheries Ltd, Li Taka Pharmaceuticals Ltd Sakthi Finance Limited, Parvidhgaar Leasing & Finance Ltd., Shoppers Investment & Finance Ltd., Gordon Woodoffe Ltd Indian Seamless Steels & Alloys Limited, Indian Seamless Steels & Alloys Ltd, ACC Babcock Ltd, J S Rathi & Associates Transamerica Apple Distribution Finance Private Limited, Apple Finance Ltd Countryclub India Limited, TMI Network, Vimta Lab Ltd, Model Fin Corp Ltd, Goldstar Cements Ltd, Priyadarshini Leasing & Finance Ltd Automotive Research Association of India. 20 20 February 19, 1999 774,653

VV Padmanabhan

MM Muralidharan

4 4 Deputy General Manager Network Resources & Control 4 4 Deputy General Manager Finance & Accounts 4 0 Manager Internal Audit 4 7 Senior Manager Credit & Risk

B.Com., PGDBA

21

14

July 15, 1992

1,394,336

B.Com., ACA

19

19

April 16, 1996

1,524,032

Shirish Thatte

B.Com., ACA

15

10

September 27, 2003

786,886

S Radhakrishnan

B.Sc., MBA, CA (Inter)

22

July 10, 2002

1,178,583

M Gopinathan

5 2 Deputy General Manager-Accts.

B.Com., DBM

29

29

June 10, 1992

1,329,702

* Note: Mr. C S Ravindran, the President and Chief Financial Officer has submitted his resignation on October 1, 2006. Though his resignation has been accepted, he will continue in office till December 31, 2006 or such later date as may be mutually agreed upon. All the abovementioned key managerial personnel are permanent employees of our Company. The remuneration of each of our key personnel is as per the statement pursuant to Section 217(2A) of the Companies Act, 1956 and the Companies (Particulars of Employees) Rules, 1975. The organization structure of the senior management of our Company is given below:
Managing Director President

V P Mktg Bajaj Products

V P Mktg Consumer Finance

V P Operations

VPIT

VP Collections

CFO

Purchase

Finance

Internal Audit

Credit &Risk & Risk

Company Secretary

Accounts

Br Admin & Network

Legal

HR

63

BAJAJ AUTO FINANCE LIMITED Shareholding of our key managerial personnel in our Company as of November 24, 2006 Name No. of Shares held Percentage to total paid-up Capital Dipak Poddar 1,00,000 0.48 (Managing Director) CS Ravindran 2,000 0.01 (President) Suhas Patwardhan 100 0 (Company Secretary) M Gopinathan 100 0 (Deputy General Manager Accounts) Changes in our key managerial personnel during the last three years
Name and Designation of the Employee Adarsh Kumar Vice President Marketing (Consumer Finance) Vivek Adavatkar Manager Human Resources Neeraj B Bhai Vice President Information Technology V Karunakaran Vice President Marketing (Bajaj Products) V. Rajagopalan General Manager Finance Ramesh Chander Manager Credit Control Kannan Narayanswamy Head Collection & Risk Pankaj B Thadani Chief Finance Officer September 27, 2006 May 10, 2006 April 17, 2006 Date of Resignation Date of Appointment March 06, 2006 December 16, 2004 August 11, 2005 July 11, 2005 May 14, 2004 October 6, 1992 November 1, 2006 November 7 , 2006

Note: Mr. C S Ravindran, the President and Chief Financial Officer has submitted his resignation on October 1, 2006. Though his resignation has been accepted, he will continue in office till December 31, 2006 or such later date as may be mutually agreed upon.

Interest of Promoters, Directors and key managerial personnel Except as stated in Related Party Transactions on page 84 of this Letter of Offer, and to the extent of shareholding in our Company, our Promoters and promoter group do not have any other interest in our business. All Directors of the Company may be deemed to be interested to the extent of fees, if any, payable to them for attending meetings of the Board or a Committee thereof as well as to the extent of other remuneration, reimbursement of expenses payable to them under our Articles of Association. The Managing Director is interested to the extent of remuneration paid to him for services rendered by him. All our Directors may also be deemed to be interested to the extent of Equity Shares, if any, held by them or that may be subscribed for and allotted to them, out of the present Issue in terms of this Letter of Offer and also to the extent of any dividend payable to them and other distributions in respect of the said Equity Shares. None of our Directors are interested in any advances or facilities that have been provided by us to their relatives or persons in which such relatives are interested. The key managerial personnel of our Company do not have any interest in our Company other than to the extent of the remuneration or benefits to which they are entitled to as per their terms of appointment and reimbursement of expenses incurred by them during the ordinary course of business and to the extent of the Equity Shares held by them in our Company, if any. 64

BAJAJ AUTO FINANCE LIMITED

PROMOTERS AND PROMOTER GROUP

Promoters Our Promoters are Bajaj Auto Limited and Bajaj Auto Holdings Limited. I. Bajaj Auto Limited Bajaj Auto Limited (BAL) was incorporated under the Indian Companies Act, 1913 on November 29, 1945 as Bachhraj Trading Corporation Private Limited. Its name was changed to Bajaj Auto Limited on October 11, 1960. Its registered office is situated at Mumbai-Pune Road, Akurdi, Pune 411 035. The main object of BAL is to carry on the business of manufacturing, buying, selling, reselling, exchanging, altering, importing, assembling, distributing and dealing in Motor vehicles, packages of component parts thereof, trucks, Tractors, Chassis, Motors, Auto rickshaws, Scooters, Motor-Scooters, three-wheelers, motor cycles, buses, lorries, omnibuses, engines, locomotives, turbines, tanks, ships, boats, barges, launches, aeroplanes, air-ships, seaplanes, balloons and aircraft of every description and other vehicles and component or motor vehicle replacement parts, tools implements, spare parts, accessories, materials and products for the transport or conveyance of passengers, merchandise and goods of every description whether propelled or used by electricity, steam, oil, vapour, gas, petroleum, diesel oil, or any other motive or mechanical power, in India or elsewhere; and in particular to assemble and manufacture Vespa Scooters and Vespa three-wheelers under license from Messrs Piaggio & Co., Genoa, Italy. The details of the promoters of BAL and their respective shareholdings as on September 30, 2006 are given below:
Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. Names of the Promoters of BAL Directors of BAL Rahul Bajaj Shekhar Bajaj Madhur Bajaj Niraj Bajaj Rajiv Bajaj Sanjiv Bajaj Manish Kejriwal Relatives of directors of BAL Savitridevi Bajaj Umadevi Agarwal Shishir Bajaj Suman Jain Naresh Chandra Ruparani Bajaj Minakshi Bajaj Kiran Bajaj Kumud Bajaj Minal Bajaj Sunaina Kejriwal Anant Bajaj Apoorva Bajaj Geetika Bajaj Kushagra Bajaj No. of Shares 1,991,092 770,090 846,516 1,241,488 373,050 394,271 100 311,140 85,320 886,630 415,120 6,000 314,453 300,530 184,525 716,334 50,400 204,670 247,687 179,850 199,750 76,200 % 1.97 0.76 0.84 1.23 0.37 0 .3 9 0.00 0.31 0.08 0.88 0.41 0.01 0.31 0.30 0.18 0.71 0.05 0.20 0.24 0.18 0.20 0.08

65

BAJAJ AUTO FINANCE LIMITED

23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. Kriti Bajaj Neelima Bajaj Nimisha Bajaj Niravnayan Bajaj Deepa Bajaj Rishab Bajaj Shefali Sanjeev Bajaj Sanjali Bajaj Siddhant Bajaj Bodies Corporate Bachhraj & Company Ltd. Bachhraj & Company Pvt. Ltd, Bachhraj Factories Ltd. Bachhraj Factories Pvt. Ltd. Baroda Industries Pvt. Ltd Bajaj Sevashram Pvt. Ltd. Bajaj Hindusthan Ltd. Jamnalal Sons Pvt. Ltd. Kamalnayan Invt. & Trading Pvt. Ltd. Rahul Securities Pvt. Ltd. Niraj Holdings Pvt. Ltd. Madhur Securities Pvt. Ltd. Shishir Holdings Pvt. Ltd. Hercules Hoists Ltd. Hindustan Housing Co. Ltd. Mukand Global Finance Ltd. Shekhar Holdings Pvt. Ltd. Catalyst Finance Ltd. Primus Investments & Finance Ltd. Bajaj Auto Employees Welfare Fund 30,500 171,719 159,785 72,966 10,575 8,500 10,000 8,500 7,500 1,641,380 201,348 763,112 139,275 815,001 2,141,460 48,000 12,716,213 55,600 130,000 9,300 37,000 124,900 83,694 7,200 20,350 27,500 200 275 914,565 0.03 0.17 0.16 0.07 0.01 0.01 0.01 0.01 0.01 1.62 0.20 0.75 0.14 0.81 2.12 0.05 12.57 0.05 0.13 0.01 0.04 0.12 0.08 0.01 0.02 0.03 0.00 0.00 0.90

The permanent account number, bank account number, the RoC registration number and address of the registrar of companies where BAL is registered have been submitted to the Stock Exchanges at the time of filing of Letter of Offer with them.

66

BAJAJ AUTO FINANCE LIMITED Shareholding as of September 30, 2006

Sr. No. (A) Category Shareholding of Promoter and Promoter Group Indian Promoters Individuals / HUF Bodies Corporate Sub-Total Public shareholding Institutions Mutual Funds / UTI Financial Institutions / Banks Central Govt. / State Govt. Insurance Companies Foreign Institutional Investors Sub-Total Non-Institutions Bodies Corporate Indian Public NRIs OCBs Sub-Total Total Public Shareholding Total (A) + (B) Shares held by custodians and against which Depository Receipts have been issued GRAND TOTAL No. of Shares %

10,275,261 19,876,373 30,151,634

10.16 19.64 29.80

(B) 1.

2,380,793 224,800 10 5,830,619 19,710,935 28,147,157 13,511,152 26,764,936 612,920 1,060 40,890,068 69,037,225 99,188,859 1,994,651 101,183,510

2.35 0.22 0.00 5.76 19.48 27.82 13.35 26.45 0.61 0.00 40.41 68.23 98.03 1.97 100.00

2.

(C)

Board of Directors 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Rahul Bajaj; Madhur Bajaj; Rajiv Bajaj; Sanjiv Bajaj; DS Mehta; Kantikumar R Podar; Shekhar Bajaj; DJ Balaji Rao; JN Godrej; SH Khan; Suman Kirloskar; Naresh Chandra; Nanoo Pamnani; Manish Kejriwal; P Murari; and Niraj Bajaj 67

BAJAJ AUTO FINANCE LIMITED Financial Performance The operating results of BAL for the fiscal 2004, 2005 and 2006 are as under: (in Rs. million except per share data)
As at and for the year ended March 31 2004 Sales and other income Profit after tax Equity Capital (par value Rs. 10 per share) Reserves and Surplus* Earnings per share (Rs.) Book value (Rs.) 52,703 7,315 1,012 35,924 72.98 365.04 2005 63,228 7,668 1,012 40,332 75.60 408.60 2006 81,063 11,016 1,012 46,696 111.00 471.49

* Net of revaluation reserves and miscellaneous expenses not written off.

Share Quotation The equity shares of BAL are listed on BSE and NSE. In addition, BAL has listed its Global Depository Receipts on the London Stock Exchange on November 4, 1994. The details of the highest and lowest price on BSE and NSE during the preceding six months are as follows: BSE

Highest (Rs.) June 2006 July 2006 August 2006 September 2006 October 2006 November 2006
(Source: BSE)

Lowest (Rs.) 2,736.85 2,808.90 2,785.00 2,998.20 3,147.55 2,839.70 2,233.65 2,390.70 2,467.90 2,698.15 2,741.55 2,562.45

NSE

Highest (Rs.) June 2006 July 2006 August 2006 September 2006 October 2006 November 2006
(Source: NSE)

Lowest (Rs.) 2,748.75 2,805.80 2,784.75 2,996.40 3,150.95 2,838.75 2,246.55 2,389.85 2,474.55 2,698.05 2,744.00 2,559.40

Bajaj Auto Limited made an issuance of Global Depository Receipts, the details of which are as under: Date of closure of issue: October 27, 1994 Issue price: Rs 794.65 per equity share (equivalent to US$ 25.33 per GDR) Current Market Price (as on November 30, 2006): Rs. 2,644.75 Promise vis--vis performance: The funds from the issue of Global Depository Receipts were used mainly for meeting capital expenditure requirements and partly for meeting long term working capital requirements. The objects of the issue were achieved. 68

BAJAJ AUTO FINANCE LIMITED Mechanism for redressal of investor grievances: For the redressal of investor grievances, if any, BAL appointed ICICI Limited as Custodians for the Global Depository Receipts. BAL has not made any public or rights issue in the last three years and there has been no change in the capital structure during the last six months. BAL has not become a sick company under the meaning of SICA and it is not under winding up. Transactions between BAL and the Company The following are the details of the transactions between BAL and the Company where such transactions exceed in value in the aggregate 10% of the total sales and purchases of the Company during the fiscal 2006:

Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

II.

Particulars Contribution to Equity Contribution to Warrants Loan refunded to BAL Loan taken from BAL Interest received by BAL Dividend received by BAL Subvention charges paid for finance scheme by BAL Services rendered Bad debts sharing Support charges for Insurance business Insurance premia paid Insurance claims received Other debits with BAL Other credits

(In Rs. million) Amount 413.13 123.27 259.00 300.00 9.40 41.20 101.40 3.70 10.80 16.40 1.00 0.20 0.30 0.50

Bajaj Auto Holdings Limited Bajaj Auto Holdings Limited (BAHL) is a wholly owned subsidiary of BAL and was incorporated under the Companies Act on February 26, 1979 as Bajaj Auto Holdings Private Limited. It became a deemed public company under section 43A of the Companies Act with effect from January 22, 1980. Its name was changed to Bajaj Auto Holdings Limited on February 27, 2002. Its registered office is situated at C/o. Bajaj Auto Limited, Mumbai-Pune Road, Akurdi, Pune 411 035. BAHL is an investment company whose main object is to underwrite, sub-underwrite, to invest in and acquire, hold, sell, buy or otherwise deal in shares, debentures, debenture stocks, bonds, units, obligation and securities issued by engineering companies in general and automobile companies in particular. The permanent account number, bank account number, the RoC registration number and address of the registrar of companies where BAHL is registered have been submitted to the Stock Exchanges at the time of filing of Letter of Offer with them. Shareholding as of September 30, 2006 BAHL is a wholly owned subsidiary of BAL. Board of Directors 1. DS Mehta; 2. Madhur Bajaj; 3. Rajiv Bajaj; 69

BAJAJ AUTO FINANCE LIMITED 4. 5. Kevin Dsa; and Sanjiv Bajaj.

Financial Performance The operating results of BAHL for the fiscal 2004, 2005 and 2006 are as under: (in Rs. million except per share data)
As at and for the year ended March 31 2004 Sales and other income Profit after tax Equity Capital (par value Rs. 10 per share) Reserves and Surplus* Earnings per share (Rs.) Book value (Rs.) 68.97 4.65 2.45 274.95 189.90 11,322.52 2005 46.06 28.85 2.45 286.49 1,177.63 11,793.47 2006 65.70 62.45 2.45 348.94 2,549.00 14,342.45

* Net of revaluation reserves and miscellaneous expenses not written off. Share Quotation The equity shares of BAHL are not listed on any stock exchange. It has not made any public or rights issue in the last three years and there has been no change in the capital structure during the last six months. BAHL has not become a sick company under the meaning of SICA and it is not under winding up. Promoter Group Apart from the Promoters, the following companies form a part of our promoter group as per the definition of the Promoter Group in terms of Explanation II to Clause 6.8.2.2 of the SEBI DIP Guidelines. 1. 2. 3. 4. 5. 6. 7. 8. Bajaj Allianz General Insurance Company Limited; Bajaj Allianz Life Insurance Company Limited; Bajaj Electricals Limited; Hercules Hoists Limited; Jamnalal Sons Private Limited; Maharashtra Scooters Limited; Mukand Limited; and Monotona Tyres Limited.

For details of shareholding of our Promoter and promoter group, refer to the section Capital Structure on page 14 of this Letter of Offer and for details of our group companies, refer to the section Promoter Group on page 65 of this Letter of Offer.

70

BAJAJ AUTO FINANCE LIMITED

PROMOTER GROUP
The details of our promoter group companies are as under: I. Bajaj Allianz General Insurance Company Limited Bajaj Allianz General Insurance Company Limited was incorporated under the Companies Act on March 12, 2001. Its registered office is situated at GE Plaza, Airport Road, Yerawada, Pune 411 006. The main object of Bajaj Allianz General Insurance Company Limited is to carry on the business of general insurance. Shareholding as of September 30, 2006
Sr. No. 1. Indian Promoters BAL Sub Total 2. Foreign Promoters Allianz AG Sub Total TOTAL 28,613,000 28,613,000 110,050,000 26 26 100 81,437,000 81,437,000 74 74 Category No. of Shares %

Board of Directors 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Rahul Bajaj ; Werner Zedelius; Sanjay Asher; Sanjiv Bajaj; Niraj Bajaj; Heinz Dollberg; Ranjit Gupta; Suraj Lal Mehta; Don Nguyen; Dipak Poddar; and Bruce Bowers (alternate to Werner Zedelius).

71

BAJAJ AUTO FINANCE LIMITED Financial Performance The operating results of Bajaj Allianz General Insurance Company Limited for the fiscal 2004, 2005 and 2006 are as under: (in Rs. million except per share data)
As at and for the year ended March 31 2004 2005 2006 4,797.97 8,560.74 12,845.68 216.89 470.92 515.69 1,096.42 1,098.21 1,100.50 217.02 687.93 1,570.22 1.97 4.28 4.69 11.94 16.24 24.27

Sales and other income Profit after tax Equity Capital (par value Rs. 10 per share) Reserves and Surplus* Earnings per share (Rs.) Book value (Rs.)

* Net of revaluation reserves and miscellaneous expenses not written off.

Share Quotation The equity shares of Bajaj Allianz General Insurance Company Limited are not listed on any stock exchange. It has not made any public or rights issue in the last three years and there has been no change in the capital structure during the last six months. Bajaj Allianz General Insurance Company Limited has not become a sick company under the meaning of SICA and it is not under winding up. II. Bajaj Allianz Life Insurance Company Limited Bajaj Allianz Life Insurance Company Limited was incorporated under the Companies Act on March 12, 2001. Its registered office is situated at GE Plaza, Airport Road, Yerawada, Pune 411 006. The main object of Bajaj Allianz Life Insurance Company Limited is to carry on the business of life insurance. Shareholding as of September 30, 2006
S r. N o . 1. In d ia n P ro m o ters BAL S u b T o ta l 2. F o reig n P r o m o ters A llian z A G S u b T o ta l TOTAL 3 9 ,0 60 ,78 8 3 9 ,0 60 ,78 8 1 5 0 ,23 3 ,8 0 0 26 26 100 1 1 1 ,17 3 ,0 1 2 1 1 1 ,17 3 ,0 1 2 74 74 C a teg o ry N o. of Sha res %

Board of Directors 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Rahul Bajaj; Werner Zedelius; Sanjay Asher; Sanjiv Bajaj; Heinz Dollberg; Craig Ellis; Ranjit Gupta; Suraj Lal Mehta; S H Khan; PS Palande; and Bruce Bowers (alternate to Werner Zedelius). 72

BAJAJ AUTO FINANCE LIMITED Financial Performance The operating results of Bajaj Allianz Life Insurance Company Limited for the fiscal 2004, 2005 and 2006 are as under: (in Rs. million except per share data)

As at and for the year ended March 31 2004 Sales and other income Profit after tax Equity Capital (par value Rs. 10 per share) Reserves and Surplus* Earnings per share (Rs.) Book value (Rs.)
Share Quotation The equity shares of Bajaj Allianz Life Insurance Company Limited are not listed on any stock exchange and it has not made any public issue in the last three years. Bajaj Allianz Life Insurance Company Limited has not become a sick company under the meaning of SICA and it is not under winding up III. Bajaj Electricals Limited Bajaj Electricals Limited was incorporated under the Indian Companies Act, 1913 on September 12, 1938. Its registered office is situated at 45-47, Veer Nariman Road, Mumbai 400 023. The main object of Bajaj Electricals Limited is to manufacture and market electrical goods. Shareholding as of September 30, 2006
Sr. No. (A) Category Shareholding of Promoter and Promoter Group Indian Promoters Individuals / HUF Bodies Corporate Sub-Total Public shareholding Institutions Mutual Funds / UTI Financial Institutions / Banks Foreign Institutional Investors Sub-Total Non-Institutions Bodies Corporate Indian Public NRIs Clearing Members Sub-Total Total Public Shareholding GRAND TOTAL No. of Shares %

2005 10,016.75 (367.56) 1,497.61 1,176.57 (2.45) 10.77

2006 31,335.78 (985.44) 1,502.34 3,495.31 (6.56) 19.67

2,207.99 (268.13) 1,494.30 986.70 (1.79) 11.93

* Net of revaluation reserves and miscellaneous expenses not written off.

2,043,218 3,693,167 5,736,385

23.64 42.73 66.37

(B) 1.

207,492 441,838 706,079 1,355,409 329,365 1,162,802 57,476 1,443 1,551,086 2,906,495 8,642,880

2.40 5.11 8.17 15.68 3.81 13.46 0.67 0.02 17.95 33.63 100.00

2.

73

BAJAJ AUTO FINANCE LIMITED Board of Directors 1. 2. 3. 4. 5. 6. 7. 8. Shekhar Ramkrishna Bajaj; Harsh Vardhan Goenka; Ashok Kumar Jalan; Ajit Gulabchand; Vishnu Haribhakti; Madhur Bajaj; Anant Bajaj; and Indu Shahani.

Financial Performance The operating results of Bajaj Electricals Limited for the fiscal 2004, 2005 and 2006 are as under: (in Rs. million except per share data)
As at and for the year ended March 31 2004 Sales and other income Profit after tax Equity Capital (par value Rs. 10 per share) Reserves and Surplus* Earnings per share (Rs.) Book value (Rs.) 5,220.10 113.60 86.43 404.63 17.17 56.82 2005 6,512.59 138.41 86.43 506.83 14.49 68.64 2006 8,482.09 298.34 86.43 689.98 31.49 89.83

* Net of revaluation reserves and miscellaneous expenses not written off.

Share Quotation The equity shares of Bajaj Electricals Limited are listed on BSE and the Delhi Stock Exchange Association Limited (Delhi Stock Exchange). The shares were not traded on the Delhi Stock Exchange during the fiscal 2006. The details of the highest and lowest price on BSE and NSE during the preceding six months are as follows:

Highest (Rs.) June 2006 July 2006 August 2006 September 2006 October 2006 November 2006
(Source: BSE)

Lowest (Rs.) 537.90 502.80 490.00 505.80 496.00 451.00 386.65 469.00 449.40 438.50 455.00 387.85

Bajaj Electricals Limited has not made any public issue in the last three years and there has been no change in the capital structure during the last six months. Bajaj Electricals Limited made a rights issue of its equity shares in the last three years, the details of which are as under: Date of closure of issue: October 31, 2003 Issue Price: Rs. 25 per equity share (including a premium of Rs. 15) Current market price (As on November 30, 2006): Rs. 387.85 74

BAJAJ AUTO FINANCE LIMITED Promise vis--vis performance: The main objects of the issue were (i) to redeem preference shares; (ii) to repay short term loans (ICDs); and (iii) to finance issue expenses. The objects of this issue have been met. There was no separate promise or projections made by the company in the aforesaid rights issue. There has been no change in capital structure since this issue. Bajaj Electricals Limited has not become a sick company under the meaning of SICA and it is not under winding up. IV. Hercules Hoists Limited Hercules Hoists Limited was incorporated under the Companies Act on June 15, 1962. Its registered office is situated at 110, Minerva Industrial Estate, Mulund (West), Mumbai 400 080. The main object of Hercules Hoists Limited is to manufacture hoisting equipment. Shareholding as of September 30, 2006

Sr. No. A. Indian Promoters Individuals/ HUF Bodies Corporate Sub-Total B. (i) (ii) (iii) (iv) (v) Public Share holding Non-Institutions Bodies Corporate Indian Public NRIs/OCB

Category Promoter and Promoter Group

No. of Shares

354,930 201,450 556,380

44.37 25.18 69.55

16,703 109,430 40,826 73,818 2,843 2,43,620 800,000

2.09 13.68 5.10 9.23 0.36 30.45 100.00

Any other Independent directors and their relatives Any other Clearing members Sub-Total GRAND TOTAL

Board of Directors 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Shekhar Bajaj; Naresh Chandra; Klaus Carl Uebel; HA Nevatia; Kishorilal F Jhunjhunwala; Vinaya L Mehrotra; EB Desai: Shailesh V Haribhakti. Mukul M. Upadhyaya; and Gaurav V. Nevatia 75

BAJAJ AUTO FINANCE LIMITED Financial Performance The operating results of Hercules Hoists Limited for the fiscal 2004, 2005 and 2006 are as under:
As at and for the year ended March 31 2004 2005 307.61 490.61 30.32 67.05 8.00 8.00 164.58 220.43 37.90 83.82 215.73 285.53

Sales and other income Profit after tax Equity Capital (par value Rs. 10 per share) Reserves and Surplus* Earnings per share (Rs.) Book value (Rs.)

2006 657.66 96.67 8.00 298.55 120.84 383.19

Share Quotation The equity shares of Hercules Hoists Limited are listed on BSE.The details of the highest and lowest price on BSE during the preceding six months are as follows:

Highest (Rs.) June 2006 July 2006 August 2006 September 2006 October 2006 November 2006
(Source: BSE)

Lowest (Rs.) 2397.85 1859.35 2,372.55 3,139.00 2,031.05 1,779.20 1435.95 1397.95 1,661.35 1,726.45 1,784.20 1,550.10

Hercules Hoists Limited has not made any public or rights issue in the last three years and there has been no change in the capital structure during the last six months. Hercules Hoists Limited, had made a public issue in 1962 and the prospectus of which is not available with Hercules Hoist. Accordingly we are unable to confirm if any projections have been given in the offer document and whether they were met. Please also refer risk factor "In the past we were unable to meet with our Promise vs. Performance pursuant to a public issue" on page xiv. Hercules Hoists Limited has not become a sick company under the meaning of SICA and it is not under winding up. V . Jamnalal Sons Private Limited Jamnalal Sons Private Limited was incorporated under the Indian Companies Act, 1913 on March 5, 1938. Its registered office is situated at Bachhraj Bhavan, Bachhraj Road, Wardha 442 001. Jamnalal Sons Private Limited is an investment company. Shareholding as of September 30, 2006
Sr. No. 1. 2. 3. 4. 5. 6. Name of Shareholder Bajaj Sevashram Limited Bajaj Sevashram Limited jointly with DS Mehta Bajaj Sevashram Limited jointly with BK Desai Bajaj Sevashram Limited jointly with KR Bhattad Bajaj Sevashram Limited jointly with Ganeshnarayan Chandak Bajaj Sevashram Limited jointly with AR Tiwari GRAND TOTAL No. of Shares 495 1 1 1 1 1 500 % 99 0.20 0.20 0.20 0.20 0.20 100

76

BAJAJ AUTO FINANCE LIMITED Board of Directors 1. 2. 3. 4. Niraj Bajaj; Shishir Bajaj; HA Nevatia; and DS Mehta.

Financial Performance The operating results of Jamnalal Sons Private Limited for the fiscal 2004, 2005 and 2006 are as under:
(in Rs. million except per share data) As at and for the year ended March 31 2004 Sales and other income Profit after tax Equity Capital (par value Rs. 1,000 per share) Reserves and Surplus* Earnings per share (Rs.) Book value (Rs.) 245.12 217.31 0.5 759.26 339,491 2,043,000 2005 328.93 304.50 0.5 1,059.96 601,388 2,623,000 2006 371.40 344.67 0.5 1,399.81 539,710 2,910,378

Share Quotation The equity shares of Jamnalal Sons Private Limited are not listed on any stock exchange. It has not made any public or rights issue in the last three years and there has been no change in the capital structure during the last six months. Jamnalal Sons Private Limited has not become a sick company under the meaning of SICA and it is not under winding up. VI. Maharashtra Scooters Limited Maharashtra Scooters Limited was incorporated under the Companies Act on June 11, 1975. Its registered office is situated at C/o. Bajaj Auto Limited, Mumbai-Pune Road, Akurdi, Pune 411 035. The main object of Maharashtra Scooters Limited is to manufacture scooters and other automotive or motorised vehicles or components thereof. The production of geared scooters has ceased from April 2006. However, Maharashtra Scooters Limited continues to produce pressure die casting dies for the two/ three wheeler industry. Maharashtra Scooters Limited is exploring different alternatives in this situation and various options are under consideration.

77

BAJAJ AUTO FINANCE LIMITED Shareholding as of September 30, 2006

Sr. No. A. Indian Promoters Bodies Corporate Sub-Total B. (i) (ii) (iii) (iv) Public Share holding Institutions Mutual Funds/ UTI Financial Institutions/ Banks Insurance Companies FIIs Sub-Total Non-Institutions (i) (ii) (iii) (iv) Bodies Corporate Indian Public NRIs Any other (clearing members) Sub-Total Total Public Shareholding GRAND TOTAL 1,514,326 3,226,892 22,988 12,719 4,776,925 5,600,008 11,428,568 13.25 28.24 0.20 0.11 41.80 49.00 100.00 4,350 160,922 352,202 305,609 823,083 0.04 1.41 3.08 2.67 7.20 5,828,560 5,828,560 51.00 51.00 Category Promoter and Promoter Group No. of Shares %

Board of Directors 1. 2. 3. 4. 5. 6. Madhur Bajaj; Dhirajlal S Mehta; Jayant H Shah; Sanjiv Bajaj; RN Joshi; and VH Deshmukh.

78

BAJAJ AUTO FINANCE LIMITED Financial Performance The operating results of Maharashtra Scooters Limited for the fiscal 2004, 2005 and 2006 are as under: (in Rs. million except per share data) As at and for the year ended March 31 2004 2005 2006 Sales and other income 463.74 464.03 422.85 Profit after tax 62.03 79.10 153.67 Equity Capital (par value Rs. 10 per share) 114.29 114.29 114.29 Reserves and Surplus* 1,570.35 1,629.63 1,726.02 Earnings per share (Rs.) 5.43 8.38 13.45 Book value (Rs.) 144.21 149.77 157.11
* Net of revaluation reserves and miscellaneous expenses not written off.

Share Quotation The equity shares of Maharashtra Scooters Limited are listed on BSE and NSE. The details of the highest and lowest price on BSE and NSE during the preceding six months are as follows:

Highest (Rs.) June 2006 July 2006 August 2006 September 2006 October 2006 November 2006
(Source : BSE)

Lowest (Rs.) 365.7 311.35 296.15 287.70 320.70 305.95 237.45 268.20 266.30 270.00 286.70 290.00

Highest (Rs.) June 2006 July 2006 August 2006 September 2006 October 2006 November 2006
(Source: NSE)

Lowest (Rs.) 381.35 312.80 294.10 291.95 323.65 307.00 237.95 270.30 266.10 270.05 287.05 290.05

Maharashtra Scooters Limited made a public issue of its equity shares in fiscal 1978, the details of which are given below: Date of closure of issue: November 12, 1977 Issue Price: Rs. 10 per equity share Current Market Price (As on November 30, 2006): Rs. 303.80 Promise vis--vis performance: The main objects of the issue were to part finance the establishment of the project for the manufacture of scooters. The objects of this issue have been met. Mechanism for redressal of investor grievances: Maharashtra Scooters Limited has constituted a shareholders/ investors grievance committee for redressal of investors grievances in the year 2000. Maharashtra Scooters Limited has not made any public or rights issue in the last three years and there has 79

BAJAJ AUTO FINANCE LIMITED been no change in the capital structure during the last six months. Maharashtra Scooters Limited has not become a sick company under the meaning of SICA and it is not under winding up. VII. Mukand Limited Mukand Limited was incorporated under the Indian Companies Act, 1913 on November 29, 1937 as Mukand Iron & Steel Works Limited. Its name was changed to Mukand Limited on March 23, 1989. Its registered office is situated at Bajaj Bhavan, Jamnalal Bajaj Marg, 226, Nariman Point, Mumbai 400 021. The main object of Mukand Limited is to manufacture iron and steel in all forms and bye-products thereof. Shareholding as of September 30, 2006
Sr. No. A. Indian Promoters Individuals/ HUF Bodies Corporate Sub-Total B. (i) (ii) (iii) (iv) Public Shareholding Institutions Mutual Funds/ UTI Financial Institutions/ Banks, Insurance Companies FIIs Sub-Total Non-Institutions (i) (ii) (iii) (iv) Bodies Corporate Indian Public NRIs Any other (Clearing Members) Sub-Total Total Public Shareholding GRAND TOTAL 4,986,379 18,226,478 474,634 93,945 23,781,436 38,860,714 73,114,129 6.82 24.93 0.65 0.13 32.53 53.15 100.00 3,571,224 861,578 8,105,621 2,540,855 15,079,278 4.88 1.18 11.09 3.48 20.62 9,569,189 24,684,226 34,253,415 13.09 33.76 46.85 Category Promoter and Promoter Group No. of Shares %

Board of Directors 1. 2. 3. 4. 5. 6. 7. 8. Rahul Bajaj; Dhirajlal S Mehta; NP Jain; Narendra J Shah; Vishakha Mulye; Shishir Bajaj; NC Sharma; T Chottopadhyay; 80

BAJAJ AUTO FINANCE LIMITED 9. 10. 11. 12. Rajesh V Shah; Niraj Bajaj; Suketu V Shah; and Vinod S Shah.

Financial Performance The operating results of Mukand Limited for the fiscal 2004, 2005 and 2006 are as under: (in Rs. million except per share data)
As at and for the year ended March 31 2004 Sales and other income Profit after tax Equity Capital (par value Rs. 10 per share) Reserves and Surplus* Earnings per share (Rs.) Book value (Rs.) 10,706.83 129.29 731.14 294.30 0.77 46.36 2005 15,238.69 1,857.27 731.14 1,913.20 25.27 68.43 2006 15,923.94 1,107.33 731.14 4,214.47 14.15 84.96

* Net of revaluation reserves and miscellaneous expenses not written off.

Share Quotation The equity shares of Mukand Limited are listed on BSE and NSE. The details of the highest and lowest price on BSE and NSE during the preceding six months are as follows: BSE

Highest (Rs.) June 2006 July 2006 August 2006 September 2006 October 2006 November 2006
(Source: BSE)

Lowest (Rs.) 92.65 85.40 89.85 91.30 93.75 91.65 66.90 68.95 71.90 82.30 85.30 78.65

NSE

Highest (Rs.) June 2006 July 2006 August 2006 September 2006 October 2006 November 2006
(Source: NSE)

Lowest (Rs.) 92.45 85.75 89.90 91.40 93.35 91.50 66.15 68.70 71.70 82.15 85.05 79.40

Mukand Limited has not made any public issue in the last three years and there has been no change in the capital structure during the last six months. Mukand Limited made a rights issue of its equity shares during the last three years, the details of which are as under: 81

BAJAJ AUTO FINANCE LIMITED Date of closure of the issue: February 26, 2004 Issue Price: Rs. 10 per equity share Current market price (as on November 30, 2006): Rs. 84.30 Promise vis--vis performance: The rights issue was a part of the financial restructuring of the Company as approved by the Corporate Debt Restructuring Cell, and the funds were to be utilized as per the business plan approved by the Monitoring Committee. The objects of this issue have been met. There was no separate promise or projections made by the company in the aforesaid rights issue. There has been no change in capital structure since this issue. Mukand Limited has not become a sick company under the meaning of SICA and it is not under winding up. VIII. Monotona Tyres Limited Monotona Tyres Limited was incorporated under the Companies Act on January 25, 1995 as Swastik Cassettes Limited. Its name was changed to Monotona Tyres Limited on December 19, 1996. Its registered office is situated at Unit 3-5, Neeru Silk Mills, Mathurdas Mill Compound, 126, NM Joshi Marg, Lower Parel (W), Mumbai 400 013. Monotona Tyres Limited is engaged in the manufacture of tyres and tubes. Shareholding as of September 30, 2006

Sr. No. 1. 2.

Name of Shareholder Promoters Other body Corporates Bajaj Auto Limited HDFC Limited ECD Electrons & Electrolysis Private Limited Makan Investment & Trading Company Limited Novelty Properties & Investment Private Limited GRAND TOTAL

No. of Shares 2,334,000

% 43.22

1,026,000 540,000 500,000 500,000 500,000 5,400,000

19.00 10.00 9.26 9.26 9.26 100.00

Board of Directors 1. 2. 3. 4. 5. Dipak Poddar; Rohit Poddar; OM Bhutada; Arun Bapat; and Anal Shah.

82

BAJAJ AUTO FINANCE LIMITED Financial Performance The operating results of Monotona Tyres Limited for the fiscal 2004, 2005 and 2006 are as under: (in Rs. million except per share data)
As at and for the year ended March 31 2004 Sales and other income Profit after tax Equity Capital (par value Rs. 10 per share) Reserves and Surplus* Earnings per share (Rs.) Book value (Rs.) 884.82 9.01 54 20.25 1.67 13.75 2005 1,066.17 9.82 54 26.99 1.82 15.00 2006 1,366.74 14.11 54 38.02 2.61 17.04

* Net of revaluation reserves and miscellaneous expenses not written off.

Share Quotation The equity shares of Monotona Tyres Limited are not listed on any stock exchange. It has not made any public or rights issue in the last three years and there has been no change in the capital structure during the last six months. Monotona Tyres Limited has not become a sick company under the meaning of SICA and it is not under winding up.

83

BAJAJ AUTO FINANCE LIMITED

RELATED PARTY TRANSACTIONS

Following are the details of Related Party transactions for fiscal 2003, 2004, 2005 and 2006 and the six months period ended September 30, 2006.
Six months period ended September 30, 2006

Particulars

Nature

Fiscal 2003

Fiscal 2004

Fiscal 2005

Fiscal 2006

A. 1.

Associates Bajaj Auto Limited Intercorporate Loan repaid net of availment during the year. Intercorporate Loan availed net of repayment during the year Interest on intercorporate loan Subvention charges received towards finance schemes Volume discount charged Equity contribution received (including premium) Preferential warrant application money received Bills of exchange discounted Services availed Bad debts sharing 220.28 10.07 3.92 3.44 4.73 5.25 823.50 2,050.00 41.00

41.00

90.67

39.92

0.92

9.38

0.13

66.63

93.19

48.07

98.84

29.98

4.60

5.25

5.33

2.88

413.14

123.27

39.49

58.23

84

BAJAJ AUTO FINANCE LIMITED

Purchase of fixed assets Dividend paid 2. Bajaj Allianz General Insurance Company Limited Bajaj Allianz Life Insurance Company Limited Insurance Service charges received 0.46 24.72 24.72 32.96 41.20 26.39

42.89

19.14

12.72

20.15

13.33

3.

Leave and license fees received Society maintenance charges recovered

0.12

0.12

0.13

0.13

0.06

0.02

0.01

0.01

0.02

4.

Maharashtra Scooters Limited

Dividend paid Bills of exchange discounted

4.61

4.61

6.15

7.68

4.10

5.85

0.12

5.

Bajaj Auto Holdings Limited

Dividend paid

9.53

9.53

12.70

15.88

8.47

B.

Key Managerial Personnel

1.

Dipak Poddar

Remuneration

1.66

1.63

1.55

3.84

2.00

Managing Director

Fixed deposit received Fixed deposit repaid Interest paid on fixed deposit Dividend paid

0.25

0.40

0.60 0.06 0.45

0.45

0.60

0.75

85

BAJAJ AUTO FINANCE LIMITED

2. C. S. Ravindran Remuneration Staff loan recovery principal Interest recovered on staff loan Dividend paid 3.30 0.15 3.89 0.64 4.59 0.10 5.74 0.04 2.59

0.03

0.10 0.01

0.08 0.01

0.05 0.01

0.07 0.02

0.01 0.01

86

BAJAJ AUTO FINANCE LIMITED

SECTION V : REPORT OF THE AUDITOR ON FINANCIAL INFORMATION REPORT OF THE AUDITOR ON FINANCIAL INFORMATION
The Board of Directors Bajaj Auto Finance Ltd. Akurdi, Pune 411 035 Gentlemen, 1) We have examined the accompanying statement of adjusted Profits and Losses for each of the five financial years ended 31st March 2002, 2003, 2004, 2005, 2006 and for the six months period ended September 30, 2006, being the last date upto which the financial statements of the Company have been drawn up, and the statement of adjusted assets and liabilities as on those dates, forming part of the Financial Information dealt with by this Report, detailed below. Both read together with the notes thereon, which are the responsibility of the Companys Management, have been audited by us for each of the five financial years ended March 31, 2002, 2003, 2004, 2005 and 2006 and for the six months period ended September 30, 2006 and made up In terms of the requirements of: a. b. Paragraph B (1) of Part II of Schedule II to the Companies Act, 1956 and The Securities and Exchange Board of India (Disclosure & Investor Protection) Guidelines, 2000 issued by SEBI on January 19, 2000 in pursuance of Section 11 of Securities and Exchange Board of India Act (SEBI), 1992, the SEBI Guidelines and The instructions dated November 13, 2006 received from Bajaj Auto Finance Ltd., requesting us to issue a report as statutory auditors of the Company relating to the offer document being issued by the Company in connection with the Rights Issue Offer of equity shares of Bajaj Auto Finance Ltd., We report as under: The statements of adjusted profits and / or losses, and the adjusted assets and liabilities of the Company as at the end of each of the five financial years ended 31st March, 2006 and six months period ended September 30, 2006, reflect the profits and losses and assets and liabilities extracted from the Profit and Loss accounts and Balance sheet for those years / period, audited by us, after making such adjustments, regroupings and disclosures as were, in our opinion, appropriate and required to be made in accordance with the provisions of paragraph 6.10.2.7 of The Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000 issued by SEBI on January 19, 2000 in pursuance of section 11 of SEBI Act, 1992, The SEBI Guideline and the same In our opinion, read with respective Significant Accounting Policies and subject to / read together with the notes thereon and after making such adjustments, regroupings and disclosures as were, in our opinion, appropriate and required, have been prepared in accordance with Part II of the Schedule II of the Companies Act, 1956 and the SEBI Guidelines. However as required by clause (b) of the provisions of paragraph 6.10.2.7 of The Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000, the Company has not restated the financial information : For the year ended March 31, 2004 and prior years, as detailed in note no. (ii) (3) relating to change in income recognition and provision for bad and doubtful debts etc. Our this Report, is being provided solely for the use of Bajaj Auto Finance Ltd., for the purpose of inclusion in the said Offer Document in connection with the Rights Issue Offer of the equity shares of the Company.

c.

2) (i)

(ii)

(a) 3)

87

BAJAJ AUTO FINANCE LIMITED This Report may not be used or relied upon by, or disclosed, referred to or communicated by yourself (in whole or in part) to, any third party for any purpose other than the stated use, except with our written consent in each instance, and which consent, may be given, only after full consideration of the circumstances at that time. Yours faithfully, For and on behalf of Dalal & Shah (Chartered Accountants)

Shishir Dalal Partner Membership No. 37310 Place: Mumbai Date: November 15, 2006 Financial Information dealt with by this report: (a) (b) (c) Statement of Adjusted assets and liabilities. Statement of Adjusted Profits and Losses. Major notes to and forming part of the statement of adjusted Profits and Losses including inter alia significant Accounting Policies followed by the Company, and the Statements of adjusted Assets and Liabilities, with a view to give better understanding of the aforesaid statements.

Including: (i) (ii) Statement of Cash Flows. Changes in the Accounting Policies during 2001-02 to 2005-06 and six months period ended September 30, 2006

(iii) Details of Other Income. (iv) Tax Statement. (v) Rates of Dividend.

(vi) Age wise analysis of Sundry Debtors and details of Loans and Advances as at September 30, 2006. (vii) Capitalisation Statement. (viii) Details of Unsecured Loans taken by the Company. (ix) (x) (xi) Related Party Transactions for 3 years and for the six months period ended September 30, 2006. Accounting Ratios. Book value and Market value of Quoted investments.

88

BAJAJ AUTO FINANCE LIMITED a) Statement of adjusted assets and liabilities:Description A. Fixed assets: Gross Block Less: Depreciation Net Block Lease Adjustment Account Total B. Investments: C. Deferred tax asset / (liability), net D. Current Assets, Loans and Advances: Stock on hire purchase finance Lease debtors Cash and Bank Balances Other Current assets Loans and advances Total E. Liabilities and Provisions: Loan Funds Secured Unsecured Total Preferential warrant application money 165.57 2084.34 2249.91 636.16 2003.12 2639.28 1908.09 1530.55 3438.64 3141.68 3661.54 6803.22 8253.21 1934.41 10187.62 7606.68 5401.96 13008.64 5389.23 7.87 152.76 16.56 897.38 6463.80 6321.34 0.07 171.10 32.80 955.21 7480.52 7268.80 0.03 247.77 29.38 1506.75 9052.73 11223.47 0.01 407.56 45.39 2258.94 13935.37 18554.31 656.35 73.30 2595.20 21879.16 22295.66 1011.86 143.69 2600.72 26051.93 540.37 485.72 54.65 (2.68) 51.97 499.43 1.70 551.99 515.64 36.35 1.29 37.64 276.62 9.76 372.53 346.40 26.13 10.73 36.86 295.93 (6.38) 284.52 262.16 22.36 0.15 22.51 231.33 (44.62) 288.09 255.93 32.16 0.09 32.25 269.03 11.46 300.83 262.92 37.91 0.04 37.95 272.67 97.31 31.03.2002 31.03.2003 31.03.2004 31.03.2005 31.03.2006

(Rs. million) 30.09.2006

---

---

---

---

123.27

123.27

89

BAJAJ AUTO FINANCE LIMITED

F. Current liabilities and provisions Current liabilities Provisions Total G. Net Worth Represented by: 1. Shareholders funds 164.90 1714.03 1878.93 164.90 1902.52 2067.42 164.90 2153.00 2317.90 164.90 2426.52 2591.42 209.94 4617.04 4826.98 209.94 4723.90 4933.84 2004.84 883.22 2888.06 1878.93 2144.05 953.79 3097.84 2067.42 2476.52 1146.08 3622.60 2317.90 3599.45 1150.50 4749.95 2591.42 5716.03 1338.00 7054.03 4826.98 7018.56 1375.55 8394.11 4933.84

Share capital Reserve and Surplus Net Worth

b)

Statement of adjusted profits and losses. (Rs.million)

Six months period ended September 30, 2006

Description

31.03.2002

31.03.2003

31.03.2004

31.03.2005

31.03.2006

INCOME: Hire Purchase Finance Business: Financing charges Administration charges 532.59 351.91 884.50 Leasing Business: Lease Rentals Lease Equalisation 56.06 (20.78) 35.28 Discount on bills of exchange discounted Interest on consumer loans Other income Total 9.23 3.97 13.20 7.99 9.43 17.42 47.88 (10.57) 37.31 86.20 (0.06) 86.14 18.76 (0.04) 18.72 547.30 387.70 935.00 551.54 487.54 1039.08 695.31 630.96 1326.27 1102.33 774.21 1876.54 754.62 491.91 1246.53

7.53 0.00 180.43 1107.74

3.50 3.26 199.69 1154.65

0.02 23.19 221.38 1301.09

89.68 237.53 1690.79

138.43 326.24 2427.35

59.44 168.40 1493.09

90

BAJAJ AUTO FINANCE LIMITED

EXPENDITURE: Other expenses Interest and finance charges 298.87 269.02 567.89 Profit before depreciation 443.54 256.35 699.89 483.36 256.80 740.16 667.29 348.66 1015.95 1214.11 646.44 1860.55 852.35 468.44 1320.79

539.85 47.26

454.76 30.44

560.93 18.75

674.84 20.06

566.80 17.34

172.30 6.99

Depreciation Profit before tax and Extraordinary items

492.59

424.32

542.18

654.78

549.46

165.31

Provision for taxation: Current tax (including Fringe Benefit Tax) Deferred Tax expenses / (credit)

172.50 (17.99) 154.51

160.17 (8.06) 152.11

163.94 16.14 180.08

201.99 38.24 240.23

226.00 (53.39) 172.61

144.30 (85.85) 58.45

Profit before extraordinary items

338.08

272.21

362.10

414.55

376.85

106.86

Net profit after extraordinary items

338.08

272.21

362.10

414.55

376.85

106.86

Appropriations Transfer to RBI Reserve Fund Transfer to General Reserve Proposed dividend Provision for dividend tax on 68.00 195.87 74.21 57.00 131.49 74.21 77.50 172.98 98.94 112.00 161.52 123.68 42.50 238.60 83.97 21.50 -

Surplus carried to balance sheet

85.36

91

BAJAJ AUTO FINANCE LIMITED c. MAJOR NOTES TO AND FORMING A PART OF THE STATEMENT OF ADJUSTED PROFITS AND LOSSES INCLUDING INTER ALIA SIGNIFICANT ACCOUNTING POLICIES FOLLOWED BY THE COMPANY AND STATEMENT OF ADJUSTED ASSETS AND LIABILITIES, WITH A VIEW TO GIVE A BETTER UNDERSTANDING OF THE AFORSAID STATEMENTS: Statement showing contingent liabilities not provided for in respect of (Figures in millions)

1.

As at Description Commercial Tax Matter under Appeal Others Service tax Matter under Appeal
*See Note 4 (a)

31.03.2002 0.15

31.03.2003 0.15

31.03.2004 0.15

31.03.2005 0.15

31.03.2006 0.15

30.09.2006 0.15

0.02 -

0.03 -

0.04 -

0.09 -

0.10 -

0.12 521.21*

2. A)

Statement of significant accounting policies. System of Accounting: (i) (ii) The company follows the mercantile system of accounting and recognizes income and expenditure on an accrual basis except in case of significant uncertainties. Financial statements are based on historical cost. These costs are not adjusted to reflect the impact of the changing value in the purchasing power of money.

(iii) Estimates and Assumptions used in the preparation of the financial statements are based upon the managements evaluation of the relevant facts and circumstances as of the date of the Financial Statements, which may differ from the actual results at a subsequent date. B) Fixed Assets and Depreciation: (i) (ii) Fixed Assets are carried at cost of acquisition. Depreciation (a) On assets relating to Leasing Business:

92

BAJAJ AUTO FINANCE LIMITED (i) Depreciation on Assets relating to Leasing Business is being provided at the rates worked on Straight Line Method over the primary period of Lease as stated in the lease agreement or at the rates specified in Schedule XIV to the Companies Act, 1956, whichever is higher.

Rates on Straight Line Method Assets Over the Primary Period of lease % 10.00 14.29 16.67 33.33 20.00 16.67 14.29 20.00 As Specified in Schedule XIV % 5.28 5.28 5.28 16.21 16.21 16.21 16.21 4.75

Plant and Machinery: Electrostatic Precipitation System Boiler Furnace Computers Primary Period 3 Years Primary Period 5 Years Primary Period 6 Years Primary Period 7 Years Others
(ii)

Depreciation on Assets relating to Leasing Business is being provided for as above, on pro-rata basis with reference to the month of commencement of the Lease Period.

(iii) Depreciation on Assets relating to Leasing Business, sold during the year, is being provided for at their respective rates upto the month in which such asset is sold. (b) On other Assets: (i) Depreciation on Other Assets is being provided on Written Down Value Method at the rates specified in Schedule XIV to the Companies Act, 1956, and on additions during the year is provided for full year instead of pro-rating the same as required by the said Schedule. Depreciation on assets sold during the year is being provided for, at their respective rates up to the month in which such asset is sold.

(ii) C)

Investments: Investments are valued at costs of acquisition. Provision for diminution in value of investments, if any, is made if such diminution is other than temporary.

D)

Income: (i) Hire Purchase Finance Business:

The company has accrued hire charges and service charges arising out of Hire Purchase Finance agreements entered into with hirers except in the case Non - Performing Assets. (ii) (a) (b) Leasing Business: Lease rental income is recognised on accrual basis. For leases effected prior to April 01, 2001, the company follows the recommendations of the Institute of Chartered Accountants of India contained in the Guidance Note on Accounting for Lease. Accordingly, a matching annual charge is made to the Profit and Loss Account representing recovery of net investment of leased assets. The said charge is calculated by deducting Finance Income for the year (arrived at by applying the rate of interest implicit in the lease to the net investment in the lease during the year) from the lease rental in respect of all its leased assets. This annual charge comprises of book depreciation (as per the policy stated in para 1(B)(ii)) and 93

BAJAJ AUTO FINANCE LIMITED a lease equalisation charge where the annual lease charge is more than book depreciation. Where the annual lease charge is less than book depreciation a lease equalisation charge credit is taken. The balance standing in the Lease Adjustment Account has been adjusted in the net value of leased assets. For leases effected on or after April 01, 2001, the company has followed the provisions of Accounting Standard 19 Leases. (iii) Other Income: Other income is mainly accounted on accrual basis, except in case of significant uncertainties. E) Non - Performing Assets The company has followed the directives of the Reserve Bank of India on Prudential Norms of Income recognition, Provision for bad and doubtful debts etc. issued from time to time. Accordingly the Company has not accrued income in respect of Hire Purchase Finance/ Lease contracts, which are Non Performing Assets as redefined therein and makes a provision in respect of the said Assets in accordance with these Guidelines. As a matter of prudence the company has from the year ended 31st March, 2005 not accrued the income and has provided for bad and doubtful debts outstanding for 6 months and above instead of 12 months and above as per the RBI Guidelines. F) Retirement Benefits (i) Gratuity: Payment for present liability of future payment of gratuity is being made to the Approved Gratuity funds, which fully cover the same under cash accumulation policy of the Life Insurance Corporation of India. However, any deficit in Plan Assets managed by LIC as compared to actuarial liability, from this year are recognized as a liability. (ii) Superannuation: Contribution to superannuation fund is being made as per the scheme of the company. (iii) Provident fund contributions are made to Bajaj Auto Limited Provident Fund Trust. (iv) Contribution to Employees Pension Scheme, 1995 is made to Government Provident Fund Authority. G) Privilege leave: Liability for privilege leave benefits, in accordance with the rules of the company is provided for at prevailing salary rate for the entire unavailed leave balance as at the balance sheet date. H) Taxation: Provision for Taxation is made on the basis of the Taxable Profits computed for the current accounting period in accordance with the Income Tax Act 1961. Deferred Tax resulting from timing differences between Book Profits and Tax Profits is accounted for at the current rate of tax to the extent the timing differences are expected to crystallize, in case of Deferred Tax Liabilities with reasonable certainty and in case of Deferred Tax Assets with virtual certainty that there would be adequate future taxable income against which Deferred Tax Assets can be realized. 3. 4. The company is engaged primarily in the business of financing and accordingly there are no separate reportable segments as per Accounting Standard-17 dealing with Segment Reporting. For the six months period ended September 30, 2006 a. Service tax: The company had received a show cause notice in the previous accounting year ended March 31, 2006 towards recovery of service tax on the income from Hire Purchase Financing business for period from 16th July, 2001 to 31st March, 2005 amounting to Rs. 260.60 million. 94

BAJAJ AUTO FINANCE LIMITED During the six months period ended September 30, 2006 the company has received an assessment order from Central Excise Service Tax Cell, confirming the demand of Service Tax on the income from Hire Purchase Financing business of the Company for the period from 16th July, 2001 to 31st March, 2005 amounting to Rs. 260.60 million and imposing a penalty of Rs. 260.60 million and therefore total sum of Rs. 521.21 million has been shown as contingent liability. The company has also received a show cause notice on the same matter for the period 1st April, 2005 to 31st March, 2006 amounting to Rs. 164.85 million. The company has filed an application for grant of stay and waiver of pre deposit of the aforementioned service tax and penalty with the CESTAT, West Zonal Bench, Mumbai. The stay application was heard on 2nd November 2006 and the Honable Tribunal Bench was pleased to completely waive the pre deposit unconditionally, as per operative portion of the Stay Order pronounced in the open court. A certified copy of the Stay Order is awaited. b. Gratuity liability was recognized as a retirement benefit expense each year, determined on the basis of the contributions demanded by Life Insurance Corporation of India (LIC), which LIC considered necessary to fund the accrued benefit obligations payable at a future date. In view of the revision to Accounting Standard 15 Employee Benefits mandatory in application w.e.f 1st April, 2006, the liability as at 31st March, 2006 was actuarially determined and the cumulative shortfall as at 31st March, 2006 was charged to general reserve. The actuarial valuation then conducted also determined the cost for the year 200607. For the current six months period ended September 30, 2006 the cost has been considered based on such actuarial valuation and an estimated increase on the fresh recruitments during the period. For the fiscal ended 31.03.2006 (a) The company has during the year revised the basis of determination of taxable income arising from financial lease transactions, with retrospective effect. As a result, the provision for tax (including deferred tax) for the financial year ended March 31, 2006 has been enhanced by Rs. 164.85 million and for the past two years by Rs. 166.10 million respectively. The profit after tax and prior period adjustments for the aforesaid periods is not comparable with those of the previous year. Gratuity liability was recognized as a retirement benefit expense each year, determined on the basis of the contributions demanded by Life Insurance Corporation of India (LIC), which LIC considered necessary to fund the accrued benefit obligations payable at a future date. In view of the revision to Accounting Standard 15 Employee Benefits mandatory in application w.e.f. 1st April, 2006 and as matter of prudence, the transitional liability as at 31st March, 2006 (adoption date) has been determined with reference to the present value of the defined benefit obligation and fair value of plan assets aggregating to Rs. 8.02 million and has been adjusted against the balance in general reserve net of deferred tax asset amounting to Rs. 2.70 million. The company during the year has issued and allotted on a private placement and / or preferential basis equity shares / warrants to promoters and other financial investors comprising of 1,003,260 fully paid equity shares of Rs. 10/- each at a premium of Rs. 400/- per share to promoters and 3,500,000 fully paid equity shares of Rs. 10/- each at a premium of Rs. 440/- per share to other financial investors. The company has also issued 3,006,540 warrants, to promoters, convertible into one fully paid equity share of the face value of Rs. 10/- each on payment of an aggregate price of Rs. 410/- per share as per the terms and conditions mentioned in the offer letter. The company has received 10% of the issue price in terms of the SEBI guidelines. Pending conversion of warrants into equity shares, the same is shown as preferential warrant application money. Thus, the company has received Rs. 2,109.60 million and the same is utilized to part finance the working capital requirements and for general corporate purposes. 6. Previous years financial figures have been regrouped wherever necessary. However current periods figures are for six months period ended September 30, 2006 and hence are not strictly comparable.

5.

(b)

(c)

95

BAJAJ AUTO FINANCE LIMITED (I) Statement of cash flows. (Rs.million)

Particulars A) CASH FLOW FROM OPERATING ACTIVITIES: Profit before tax Adjustment for: Interest / depreciation / Other non cash expenses / dividend etc. Interest / dividend / other adjustments CASH FROM OPERATIONS Changes in working capital (increase) / Decrease Direct taxes paid Net Cash From Operations (A) B) CASH FLOW FROM INVESTMENT ACTIVITIES : (Additions) / Deductions to Fixed Assets / Other Adjustments NET CASH USED IN INVESTING ACTIVITIES (B) C) CASH FLOW FROM FINANCING ACTIVITIES: Increase / (Decrease) in borrowings

20012002

20022003

20032004

20042005

2005- 2006

April 06 to September 06

492.59

424.32

542.18

654.78

549.46

165.31

73.35 -81.71 484.23

71.43 -51.74 444.01

249.87 -108.06 683.99

380.89 -363.86 671.81

763.23 -62.69 1250.00

569.57 569.57 -10.60 724.28

-67.71 -181.09 235.43

-362.81 -144.92 -63.72

257.30 -152.90 788.39

-303.51 -127.53 240.77

-5413.65 -287.29 -4450.94

-2508.49 -110.28 -1894.49

359.75

236.72

35.79

102.63

-2.50

-5.77 -5.77

359.75

236.72

35.79

102.63

-2.50

-5.77

-505.28

-81.22

-472.56

-73.57

3358.88

2819.74

96

BAJAJ AUTO FINANCE LIMITED

Particulars

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

April 06 to September 06 -95.37 -468.60 ---

Dividend Interest on loans Other adjustments NET CASH USED IN FINANCING ACTIVITY (C) Net change in cash and cash equivalents ( A + B+C) Cash and cash equivalents (opening balance) Cash and cash equivalents (closing balance) Difference in cash and cash equivalents (closing opening)
ii.

-56.52 0.00 ---

-73.44 0.00 ---

-83.77 -191.18 ---

-110.04 0.00 ---

-140.74 -598.96 2083.05

-561.80

-154.66

-747.51

-183.61

4702.23

2255.77

33.38

18.34

76.67

159.79

248.79

355.51

119.38

152.76

171.10

247.77

407.56

656.35

152.76

171.10

247.77

407.56

656.35

1011.86

33.38

18.34

76.67

159.79

248.79

355.51

Changes in accounting policies during 2001 02 to 2005 - 06 and six months period ended September 30, 2006. For the financial year 2001 2002: 1) For leases effected prior to April 01, 2001, the company follows the recommendations of the Institute of Chartered Accountants of India contained in the Guidance Note on Accounting for Lease. Accordingly, a matching annual charge is made to the Profit and Loss Account representing recovery of net investment of leased assets. The said charge is calculated by deducting Finance Income for the year (arrived at by applying the rate of interest implicit in the lease to the net investment in the lease during the year) from the lease rental in respect of all its leased assets. This annual charge comprises of book depreciation and a lease equalization charge where the annual lease charge is more than book depreciation. Where the annual lease charge is less than book depreciation a lease equalization charge credit is taken. The balance standing in the Lease Adjustment Account has been adjusted in the net value of leased assets. For leases effected on or after April 01, 2001, the company has followed the provisions of Accounting Standard 19 Leases. 2) Consequent to the issuance of the Accounting Standard 22 Accounting for taxes on income by the Institute of Chartered Accountants of India, which was mandatory in nature for the year ended March 31 2002, the company has for the first time recognized deferred taxes which result from the timing difference between book profits and tax profits. Consequently, as required by the standard, the company has recognized the deferred tax balance that would have accumulated prior to adopting the standard, if the standard had been in effect from the beginning and accordingly transitional liability is adjusted against general reserves. The details of Deferred tax assets/ liabilities are as under: 97

BAJAJ AUTO FINANCE LIMITED (Rs. million)

Particulars Transitional Adjustments March 31, 2001 Balance a Arising during the year Balance as at 31.03.2002 Arising during the year at 31.03. 2003 Arising Balance as at during the 31.03.2004 year Arising during the year Balance as at 31.03.2005 Arising during the year Balance as at 31.03.2006 Arising during the period Balance as at 30.09.2006

Deferred Tax Liabilities: On account of timing differences in a) Depreciation b) Lease Equalisation c) Financial leasing Total 22.39 6.46 28.85 (13.31) (7.64) (20.95) 9.08 (1.18) 7.90 (6.39) 1.64 0.52 (4.23) 2.69 0.46 0.52 3.67 (2.07) 3.39 16.83 18.15 0.62 3.85 17.35 21.82 (3.08) (3.80) 57.65 50.77 (2.46) 0.05 75.00 72.59 (1.41) (0.02) (16.88) (18.31) (3.87) 0.03 58.12 54.28 (0.06) (0.01) (52.60) (52.67) (3.93) 0.02 5.52 1.61

Deferred Tax Assets: On account of timing differences in

a) Disallo wance u/s. 43B of the Income Tax Act, 1961

0.00

0.55

0.55

0.33

0.88

0.36

1.24

0.67

1.91

1.75

3.66

1.50

5.16

b) Provision for doubtful debts

12.56

(3.51)

9.05

3.50

12.55

1.65

14.20

11.86

26.06

33.33

59.39

31.68 --33.18 85.85

91.07 2.69 98.92 97.31

c) Other asset Total Grand Total

--12.56 16.29

--(2.96) (17.99)

--9.60 1.70

--3.83 (8.06)

--13.43 9.76

--2.01 16.14

--15.44 (6.38)

--12.53 38.24

--27.97 (44.62)

2.69* 37.77 56.08

2.69 65.74 11.46

* adjusted against General Reserve.

3.

For the financial year 2004 2005: The company has followed the directives of the Reserve Bank of India on Prudential Norms of Income recognition, Provision for bad and doubtful debts etc. issued from time to time. Accordingly the Company does not accrue income in respect of Hire Purchase Finance/ Lease contracts, which are Non Performing Assets as redefined therein and makes a provision in respect of the said Assets in accordance with these Guidelines. As a matter of prudence the company has from the year ended 31st March, 2005 not accrued the income and has provided for bad and doubtful debts outstanding for 6 months and above instead of 12 months and above as per the RBI Guidelines. As a result, the income not accrued is Rs. 10.05 million and the additional provision for bad and doubtful debts is Rs. 23.03 million, resulting into profit before tax for the year being lower by Rs. 33.08 million. Due to non availability of related data, the Company is not in a position to restate the figures for the year ended 31st March 2004 and prior years with respect to this changed policy of provisioning / non accrual of income.

98

BAJAJ AUTO FINANCE LIMITED iii) Details of Other income. Break-up of other income (if > 20% of profit before tax) (Rs.million)
Six months period ended September 30, 2006

Description

31.03.2002

31.03.2003

31.03.2004

31.03.2005

31.03.2006

Profit before taxation (excluding extra ordinary items) 492.59 20% of net profit before tax Other income for the year Other income details Recurring, from business activities: Interest others Miscellaneous income Bad debt recoveries Non recurring, from business activities Surplus on sale of assets Provision no longer required Income from investment activities: Interest on government and trust securities Dividend Interest on bonds Profit on sale of investment Profit on redemption of securities 5.48 Income from mutual funds Provision for diminution in value of investment written back, net 7.68 67.00 Total 180.43 32.34 199.69 23.67 59.30 221.38 15.41 39.92 237.53 41.86 62.44 326.24 3.64 10.60 168.40 5.65 5.65 1.55 15.76 8.12 6.67 4.17 0.06 43.96 8.68 0.06 17.95 10.10 0.03 8.19 11.53 0.03 4.14 0.69 13.34 0.57 6.67 0.29 7.10 1.36 8.46 0.22 4.17 4.39 4.86 0.12 4.98 19.24 0.43 19.67 0.25 1.25 1.50 0.02 0.02 73.32 22.82 8.83 104.97 89.25 64.89 8.82 162.96 117.16 34.70 5.24 157.10 142.41 31.31 4.22 177.94 208.89 42.95 10.46 262.30 131.57 17.64 8.57 157.78 98.52 180.43 424.32 84.86 199.69 542.18 108.43 221.38 654.78 130.96 237.53 549.46 109.89 326.24 165.31 33.06 168.40

99

BAJAJ AUTO FINANCE LIMITED iv) Tax statement (Rs. million)

Assessment year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007 2008 Six months period ended September 30, 2006 165.31 33.66 55.64

Financial year / period

2001-2002

2002-2003 2003-2004 2004-2005 2005-2006

Profit before tax (as per recasted accounts) Tax rate (including surcharge) % A) Notional tax payable B) Permanent differences Dividend from domestic companies Income from Mutual funds/ units Income from tax free bonds Provision for diminution in value of investment written back, net* Capital gains / (loss) (different treatment in tax) Interest Building maintenance expenses Income from house property Interest tax provision written back and refund received on account of interest tax NCD issue expenses

492.59 35.70 175.85

424.32 36.75 155.94

542.18 35.88 194.50

654.78 36.59 239.60

549.46 33.66 184.95

(0.06) (5.65) (43.38) (7.68) (5.17) (0.04)

(0.06) (17.38) 5.58 0.69 (0.04)

(0.03) (15.76) (7.61) (23.67) (4.15) 0.01 (0.04)

(0.03) (8.13) (5.36) (15.41) 4.07 6.66 0.01 (0.05)

(10.28) (41.86) 0.34 (0.01)

(1.81) (3.64) -

(61.98)

(5.59) (16.80)

(51.25)

(18.24)

(3.65) (55.46)

(5.45)

C)

Timing differences Difference in book and tax depreciation Provision for non performing assets, net Employees contribution to PF etc, net Disallowances u/s. 43B Lease equalisation Software expenses (different treatment in tax) 36.98 16.19 (58.66) (375.35) (487.07) (111.95)

(9.53) 0.01 0.87 20.78 -

9.34 0.01 1.24 (3.97) 1.26

4.61 1.25 (9.44) 0.87

37.83 0.01 2.37 10.57 0.78

99.03 5.19 0.06 1.88

94.09 4.46 0.04 2.15

100

BAJAJ AUTO FINANCE LIMITED

Lease rentals due during the year on account of financial leases (capital portion) Wealth tax provision written back D) Net adjustments E) F) Tax Payable / (savings) on above adjustments Total Tax

(0.01) 49.10 (12.88) (4.60) 171.25 172.50 -31.99

0.36 24.43 7.63 2.80 158.74 160.17 -32.90

17.56 (43.81) (95.06) (34.10) 160.40 163.94 -32.12

212.65 (111.14) (129.38) (47.34) 192.26 201.99 -48.61

539.92 159.01 103.55 34.85 219.80 219.80 -52.17

266.19 254.98 249.53 83.99 139.63 139.63 -52.17

G) Tax on extraordinary items H) Tax on profits before extraordinary items I) J) Unabsorbed depreciation and business loss Loss under the head capital gains to be carried forward. *

* Not considered as a deferred tax asset / (liability)

v)

Rates of dividend.
Particulars 31.03.2002 45 74.21 31.03.2003 45 74.21 31.03.2004 60 98.94 31.03.2005 75 123.68 31.03.2006 40 83.97

Equity shares : Rate of Dividend (%) Dividend amount (Rs. million)

vi)

Age - wise analysis of sundry debtors and details of loans and advances. (Rs. million)

Particulars Sundry debtors, unsecured : (unless otherwise stated) I. Over six months: Good Doubtful Less: Provision II. Upto six months: Good Doubtful Less: Provision III. Other Good

As at 30.09.2006

0.07 0.07 -

101

BAJAJ AUTO FINANCE LIMITED Statement showing loans and advances.

Description Loans and advances, unsecured, good: Loans at agreement values less instalments received Advances for others Net investment in lease Tax paid in advance Doubtful Less: Provision 584.19 421.16 291.13 1304.24 2600.72 94.99 94.99 Amount outstanding as on 30.09.2006 (Rs. million)

vii) Capitalisation statement.

Particulars Borrowings: Short term debt Long term debt Total debts Shareholders funds : Equity share capital Reserves and surplus Total shareholders funds Long term debt / Equity ratio

Pre issue 30.09.2006 (Rs. million) 11446.81 1561.83 13008.64

Post issue 30.09.2006 (Rs. million)

11446.81 4186.01 15632.82

209.94 4724.12 4934.06 0.32

335.90 8691.66 9027.56 0.46

Note: The Company has issued 3,006,540 warrants, to promoters, convertible into one fully paid equity share of the face value of Rs. 10 each on payment of an aggregate price of Rs. 410 per share as per the terms and conditions mentioned in the offer letter. Post issue details shown above are without considering the warrant conversion.

102

BAJAJ AUTO FINANCE LIMITED viii) Details of Unsecured loans taken by the company.

Sr no. 1

Name of the lender Public / shareholders

Facility

Outstanding As on 30.09.2006 (Rs. million) 101.96

Rate of interest 7% p.a.

Repayment schedule

Fixed deposit

Rs. 30.14 million during the period October 06 to March 07 Rs 30.96 million within the fiscal 2007-08 Rs 28.03 million within the fiscal 2008-09 Rs 12.83 million within the fiscal 2009-10 Within the fiscal 2006-07 Within the fiscal 2006-07 Within the fiscal 2006-07 Within the fiscal 2006-07

Bank of America

Short term loan

500.00

Rs 150 million @ 7.65% p.a. Rs 150 million @ 7.75% p.a. Rs 200 million @ 7.80% p.a.

Syndicate bank IDBI Bank Limited Various investors

Short term loan

1000.00

Rs. 1000 million @ 7.60% p.a. Rs. 500 million @ 7.60% p.a. 6.55% p.a. to 8.05% p.a.

Short term loan

500.00

Within the fiscal 2006-07

Commercial papers

3300.00

Rs. 2650 million within the fiscal 2006-07 and Rs. 650 million during the fiscal 2007 08.

5401.96

103

BAJAJ AUTO FINANCE LIMITED ix) Related party transactions for 3 years and for the six months period ended September 30, 2006.
Nature of transactions Intercorporate loan repaid net of availment during the year Intercorporate loan availed net of repayment during the year Interest on intercorporate Loan Preferential warrant application money received Equity contribution received (including premium) Subvention charges received towards finance schemes Volume discount charged Services availed Bad debts sharing Dividend paid 4.60 3.92 24.72 5.25 3.44 32.96 5.33 4.73 39.49 41.20 2.88 5.25 58.23 26.39 31.03.2004 31.03.2005 31.03.2006 30.09.2006 Particulars A. Associates: 1. Bajaj Auto Limited

2050.00

41.00

39.92

0.92

41.00 9.38

0.13

123.27

413.14

93.19

48.07

98.84

29.98

2.

Bajaj Allianz General Insurance Company Limited Bajaj Allianz Life Insurance Company Limited

Insurance service charges Received

19.14 Leave and licence fees Received 0.12 Society maintenance charged recovered Dividend paid 0.01

12.72

20.15

13.33

3.

0.13 0.01

0.13 0.02

0.06 -

4.

Maharashtra Scooters Limited

5.

Bajaj Auto Holdings Limited

Bills of exchange discounted Dividend paid

4.61 0.12

6.15 -

7.68 -

4.10 -

9.53

12.70

15.88

8.47

104

BAJAJ AUTO FINANCE LIMITED

B. Key Managerial Personnel: 1. Mr. Dipak Poddar Managing Director 2. Mr. C S Ravindran President

Remuneration Dividend paid Remuneration Staff loan recovery Principal Interest recovered on staff Loan Dividend paid

1.63 0.45 3.89 0.64

1.55 0.60 4.59 0.10

3.84 0.75 5.74 0.04

2.00 0.40 2.59 0.03 0.01

0.08 0.01

0.05 0.01

0.07 0.02

0.01

x)

Accounting ratios.
Ratios Working

31.03.02

31.03.03

31.03.04

31.03.05

31.03.06

30.09.06

A) Earning per share (EPS) Net profit after tax (Rs. million) A Number of equity shares Earning per share (Rs.) B) Return on net worth Net profit after tax (Rs. million) A Net worth (Rs.million) Return on net worth (%) C) Net asset value per share Net worth (Rs. million) Number of equity shares Net asset value per share (Rs.) C= A/B 113.94 125.37 140.56 157.15 229.93 235.02 A B 1878.93 16490200 2067.42 16490200 2317.90 16490200 2591.42 16490200 4826.98 20993460 4933.84 20993460 B C= A/B 338.08 1878.93 17.99 272.21 2067.42 13.17 362.10 2317.90 15.62 414.55 2591.42 16.00 376.85 4826.98 7.81 106.86 4933.84 2.17 B C= A/B 338.08 16490200 20.50 272.21 16490200 16.51 362.10 16490200 21.96 414.55 16490200 25.14 376.85 20993460 17.95 106.86 20993460 5.09

Note: As net profit after tax is for the six months period ended September 30, 2006 related ratios are not comparable.

105

BAJAJ AUTO FINANCE LIMITED xi) Book Value and market value of quoted investments.
As of 30.09.2006 Particulars A) Mutual Funds: SBI Magnum Equity Fund SBI Magnum IT Fund SBI Magnum Balanced Fund B) Government and Trust securities: 13% Maharashtra State Development Loan 2007 12.32% Government of India Stock 2011 11.83% Government of India Stock 2014 12.25% Government of India Stock 2010 6.6% tax free UTI ARS Bonds 2010 C) Bonds: 11.50% IDBI Bonds 2010 D) Shares: Akai Impex Limited Bajaj Auto Limited Dai Ichi Karkaria Limited Southern Fuels Limited ICICI Bank Total 0.03 0.47 0.51 272.67 0.23 0.47 0.02 0.72 273.43 4.75 4.75 4.75 4.75 1.00 11.20 62.52 23.15 54.71 152.58 1.00 11.75 62.52 23.15 54.71 153.13 36.72 38.37 39.74 114.83 36.72 38.37 39.74 114.83 Book Value (Rs. million) Market Value (Rs. million)

106

BAJAJ AUTO FINANCE LIMITED

STOCK MARKET DATA FOR EQUITY SHARES OF OUR COMPANY

Our Equity Shares are listed on the BSE and NSE. As our shares are actively traded on the BSE and NSE, our stock market data have been given separately for each of these Stock Exchanges. The high and low closing prices recorded on the BSE and NSE for the preceding three years and the number of Equity Shares traded on the days the high and low prices were recorded are stated below: Bajaj Auto Finance Ltd BSE

Year ending March 31 2004 2005 2006

High (Rs.)

Date of High

Volume on date of high (no. of shares) 38733 10698 4082

Low (Rs.)

Date of Low April 3, 2003 May 17, 2004 April 6, 2005

Volume on date of low (no. of shares) 1500 1045 4569

Average price for the year (Rs.) 68.75 109.94 349.24

100.95 173.40 581.50

December 3, 2003 March 16, 2005 March 7, 2006

47.50 75.00 165.80

(Source: BSE)

NSE
Year ending March 31 2004 2005 2006 Volume on date of high (no. of shares) 50452 15593 4475 Date of Low April 10, 2003 May 17, 2004 April 7, 2005 Volume on date of low (no. of shares) 3900 3624 1394 Average price for the year (Rs.) 68.84 110.03 349.47

High (Rs.)

Date of High

Low (Rs.)

99.35 172.30 581.85

December 3, 2003 March 16, 2005 March 7, 2006

47.75 72.25 166.70

(Source: NSE)

107

BAJAJ AUTO FINANCE LIMITED The high and low prices and volume of Equity shares traded on the respective dates during the last six months are as follows: BSE For last 6 Months
Year ending March 31 May 2006 July 2006 August 2006 September 2006 October 2006 November 2006 Volume on date of high (no. of shares) 5054 1160 276 6382 25040 26437 Volume on date of low (no. of shares) 5801 190 517 170 2994 1344 Average price for the month (Rs.) 477.19 379.19 386.27 390.89 394.62 393.25

High (Rs.)

Date of High May 5, 2006 July 5, 2006 August 1, 2006 September 14, 2006 October 31, 2006 November 3, 2006

Low (Rs.)

Date of Low May 22, 2006 July 24, 2006 August 22, 206 September 29, 2006 October 27, 2006 November 22, 2006

528.35 414.95 395.00 394.95 432.35 484.15

289.60 343.65 376.20 390.00 390.00 351.15

NSE For last 6 Months

Year ending March 31 June 2006 July 2006 August 2006 September 2006 October 2006 November 2006 Date of High June 2, 2006 July 5, 2006 August 1, 2006 September 11, 2006 October 31, 2006 November 3, 2006 Volume on date of high (no. of shares) 3271 1860 781 1067 34391 50642 Date of Low June 14, 2006 July 24, 2006 August 18, 2006 September 19, 2006 October 4, 2006 November 22, 2006 Volume on date of low (no. of shares) 1560 237 501 11660 403 2717 Average price for the month (Rs.) 365.18 379.85 386.95 391.03 394.19 393.75

High (Rs.)

Low (Rs.)

432.35 413.90 396.10 394.90 431.10 484.00

289.75 348.30 375.50 389.95 390.00 350.90

108

BAJAJ AUTO FINANCE LIMITED

MANAGEMENTS DISCUSSIONS AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTfS OF OPERATIONS AS REFLECTED IN THE FINANCIAL STATEMENTS
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements included in this report, along with the section titled Selected Financial Information beginning on page 87 of this Letter of Offer. You should also read the section titled Risk Factors beginning on page vii, which discusses a number of factors and contingencies that could impact our financial condition and results of operations. The following discussion is based on our unconsolidated financial statements as restated, which have been prepared in accordance with Indian GAAP, the RBI Guidelines and SEBI Guidelines. Our fiscal year ends on March 31 of each year so all references to a particular fiscal year are to the twelve months ended March 31 of that year. Our historical financial performance may not be considered as indicative of future financial performance. All the financials in this chapter have been derived from our audited financial statements. Overview: We are one of the largest non banking retail finance companies in India engaged in providing finance for two and three wheeler vehicles of BAL, consumer durables, personal computers and consumer loans. We focus on the rural and semi-urban areas of India and seek to position ourselves between the organized banking sector and local financiers, offering our customers speedy disbursals and customized solutions. Since fiscal 2001, we have experienced significant growth in our customer and geographical base, expanding from 0.90 million customers in 40 branches as of March 31, 2001 to 3.44 million customers in 106 branches as of March 31, 2006. Over the period of time we have expanded our retail finance products by expanding into consumer durable loans, personal computer loans and consumer loans. During the fiscal 2006 our disbursements for two and three wheeler vehicles, consumer durables, personal computers and consumer loans comprised 60%, 24%, 13% and 3% of our total disbursements respectively. During the six months period ended September 30, 2006 our disbursements for two and three wheeler vehicles, consumer durables, personal computers and consumer loans comprised 59%, 22%, 17% and 2% of our total disbursements respectively. As of March 31, 2006 and September 30, 2006 we have a capital adequacy ratio of 28.12% and 24.03% respectively. Our net non performing assets constituted 2.13% and 3.07% of our receivables as on March 31, 2006 and September 30, 2006 respectively. Our average cost of funds excluding equity for the fiscal 2006 was 6.06% and 6.96% for the fiscal 2006 and the six months period ended September 30, 2006 respectively which we believe provides us with a competitive advantage. Factors Affecting Our Results of Operations. Several factors affect our results of operations that may make it difficult to predict future financial results based on past performance. Some of the key factors affecting our operations include demand for two and three wheeler vehicles of BAL, interest rate movements, ability to maintain low costs of funds, ability to maintain low operating cost, the demand for consumer finance and the rising competition being faced by the advent of several large banks in the retail sector. Hence, for ease of understanding the discussion of our results of operations, you should consider the relevance of factors detailed below. Demand for two and three wheelers vehicles and more particularly for BAL vehicles Our two and three wheeler segment accounted for 56%, 60% and 59% of our total disbursement as of March 31, 2005, March 31, 2006 and September 30, 2006 respectively. We are focussed on financing two and three wheelers of BAL and rely heavily on the sales and the growth of BAL. Particularly, the two wheeler segment in India has lately become highly competitive, with BAL facing competition from both Indian and foreign players. Any shift in customer preference to non BAL vehicles for reasons including better technology, low cost, etc., could have negative impact on sales of BAL. Hence, any decline in the sales of BAL would result in lower disbursals for BAL products. In case of such a scenario, we may be forced to expand our operations to other products that we are currently offering or look at new segments in which we are not experienced or which may require us to incur additional cost. See the section titled Risk Factors on page vii of this Letter of Offer for more details. 109

BAJAJ AUTO FINANCE LIMITED Volatility in the Interest Rates One of the important measures of our result of operations is our net interest income, which comprises of interest earnings from risk assets (hire purchase financing, financial leasing and consumer loans) and interest income from investments less interest expended on fixed and other loans. We also use net interest margin and spread to measure our results. Net interest margin represents the ratio of net interest revenue to average interest-earning assets. Spread represents the difference between yields on average interest-earning assets and cost of average interest-bearing liabilities including current accounts, which are non-interest bearing. Thus any volatility in the interest rates has significant impact on our results of operations. The interest rates are influenced by the monetary policies of the RBI, deregulation of the financial sector in India, domestic and international economic and political conditions and other factors that are beyond our control. Our gross operational interest income constituted 85.95%, 86.56% and 88.72% respectively of our total income for fiscal 2005, 2006 and the six months period ended September 30, 2006 respectively. Our portfolio mainly comprises of short term loan with an average tenure of 24 months, hence the risk of volatility in interest rate is minimized. However, any increase in the interest rate may affect our short term borrowing cost while any decline in the interest rate could adversely affect our lending rates, either or both of which would have negative impact on our profitability and our results of operations. Ability to maintain low cost of funds One of our strengths lies in our ability to raise funds at lower rates. Our average cost of funds for the fiscal 2005, 2006 and the six months period ended September 30, 2006 was 5.72%, 6.06% and 6.96%, respectively. Historically we have been able to raise short term debt at extremely competitive rates, which has enabled us to keep our cost of funds at lower level. Besides we have also been able to maintain good quality assets with financial support from our promoters, which has yielded us good credit rating to borrow at competitive rates. We have obtained a credit rating FAAA for our public deposits and P1+ for our commercial paper. In addition CRISIL has assigned a rating of AA+ (Stable) for Rs. 1,000 million and for Rs. 3,500 million of Non Convertible Debentures. ICRA has assigned a rating of LAA+, for our Non Convertible Debentures amounting to Rs. 3,500 million. The rating indicates that the prospect of timely servicing of the interest and principal as per terms is the best. We primarily provide credit to the unorganized sector and retail consumers. We have been able to maintain our yields due to our ability to lend at optimum lending rates and our ability to maintain low cost of funds. An increase in our cost of funds may put additional pressures on our margins. Furthermore, with the advent of several banks and other NBFCs which have access to lower cost of funds could enable them to offer loans at interest rates lower than ours and as a result there could be further downward pressure on our Gross Spread. Recent trends have indicated an upward movement in the borrowing cost and in the competitive scenario we may be constrained to pass on the increase in the cost of borrowing to our end customers thereby, putting pressure on our margins. Ability to maintain low operating cost With our operations predominantly controlled out of Pune and with most of our key business processes being managed in-house, historically we have been able to operate at lower operating costs. Our operating cost as percentage of our gross total income for the fiscal 2005, 2006 and the six months period ended September 30, 2006 was 39.47%, 50.01% and 57.08%, respectively. As we expand, we may be required to outsource some of our non-core activities in order to manage growth and scalability. We have started outsourcing some of our non-core activities like verification, business sourcing, repossession and data entry. We also plan to make significant investments in technology in order to upgrade our systems. As we intend to expand our operations, especially in the rural and semi-urban areas throughout the country it becomes important for us to have a centralised system which will enable us to manage our operations more efficiently. Thus, as we expand our operations and increase the outsourcing element it could result in increasing our operating cost. Therefore, if we are unable to maintain our operating costs at lower level, it could have negative impact on our results from operations. 110

BAJAJ AUTO FINANCE LIMITED Macroeconomic Factors The economic growth of India particularly the rural and semi urban markets influences our financial condition and results of operations. Overall GDP growth in India has been in the range of 4-9%. The Indian economy has grown steadily over the past three years. GDP growth was 4.0% in fiscal 2003, 8.5% in fiscal 2004 and 6.9% in fiscal 2005. (Source: Central Statistical Organization Ministry of Statistics and Programme Implementation). Our financial condition and results of operations are and in the future expected to be, influenced in large measure by general economic conditions prevailing in India. The various macro-economic factors include any unexpected rise in the interest rates, weather conditions adversely affecting the agriculture or various other factors such as fluctuations in commodity prices, surge and fall in financial markets and government policies affecting the growth of industrial, agriculture, manufacturing and service sector. The impact of these and other factors will affect the performance of the financial sector as it will affect the level of credit disbursed, the overall growth prospects of our business, including our ability to grow, the quality of our assets, the value of our asset portfolio and our ability to implement our strategy. Hence, for ease of understanding the discussion of our results of operations that follows you should consider the relevance of the above factors. Demand for Consumer Finance The impact of the level of the economic growth and the level of overall growth in the agriculture sector will affect the performance of our operations as it will affect the demand for consumer finance, the level of credit disbursed, and the overall growth prospects, including our ability to grow, the quality of our assets, the value of our investment portfolio and our ability to implement our strategy. The growth in the economy has led to an increase in the per capita income. During the period 2004-2005 the per capita income in India has risen by 5.22% from Rs. 11,799 in 2004 to Rs. 12,416 in 2005 (Source: Central Statistical Organization Ministry of Statistics and Programme Implementation). Rising incomes especially in rural India has led to an increase in demand for a wide range of consumer products leading to an increase in the demand for consumer finance. However, since the demand for consumer finance is highly income elastic so any significant changes in per capita income would alter the demand for consumer finance leading to an impact on our operations. Considering our intentions to grow in the rural and semi urban locations, the growth of the rural economy would significantly affect our operations and the implementation of our strategy. Hence, any alterations in the rural economic growth especially due to insufficient rainfall and drought conditions may have an impact on our operations and future growth. Ability to compete with the banking sector Our present business strategy reflects continued focus in the retail sector especially we intend to grow our business by expanding into the rural and the semi-urban areas. Several large banks and foreign banks are trying to tap into this market due to its better returns. Growing competition may result in a decline in our market share, which may reduce our revenues and margins, any of which could have a material adverse effect on our business, financial condition and results of operations. We cannot be reasonably certain that we will be able to compete successfully against such competitors, or that we will not lose potential customers to such competitors. Our competitors are some of the public sector banks, other private sector banks, and foreign banks, which generally have lower cost of funds and much larger deposit bases, more capital and larger customer bases than we do. Due to competitive pressures, we may be unable to successfully execute our growth strategy and offer products and services at reasonable returns, which may impact our business and our future financial performance. Results of operations The following table sets forth certain information with respect to our income, expenditures and profits, for the periods indicated. 111

BAJAJ AUTO FINANCE LIMITED

For the year ending March 31 * Six months period ended September 30, 2006

2003

2004

2005

2006

Income Hire Purchase Finance Business Financing charges Administration charges Leasing Business Discount on bills of exchange discounted Interest on consumer loans Other income Gross Total Income Expenditure Interest and finance charges Interest Other (Discount in respect of Commercial Paper and Bank Charges) Net Interest Income Net Interest Margin Other Expenses Depreciation PBT Tax Prior period adjustments PAT Net Profit Margin 169.97 141.08 204.17 433.51 304.28 935.0 547.30 387.70 13.20 3.50 3.26 199.69 1,154.65 1,039.08 551.54 487.54 17.42 0.02 23.19 221.38 1,301.09 1,326.27 695.31 630.96 37.31 0.00 89.68 237.53 1,690.79 1,876.54 1,102.33 774.21 86.14 0.00 138.43 326.24 2,427.35 1,246.53 754.62 491.91 18.72 0.00 59.44 168.40 1,493.09

86.38 898.30 14.04% 443.54 30.44 424.32 152.11 0.00 272.21 3.67%

115.72 1,044.29 14.04% 483.36 18.75 542.18 180.08 0.00 362.10 4.21%

144.49 1,342.13 12.84% 667.29 20.06 654.78 240.23 0.00 414.55 3.52%

212.93 1,780.91 10.82% 1214.11 17.34 549.46 172.61 0.00 376.85 2.07%

164.16 1,024.65 4.70% 852.35 6.99 165.31 58.45 0.00 106.86 0.44%

* Audited and recasted

112

BAJAJ AUTO FINANCE LIMITED Revenue Our revenue, which is referred to herein and in our financial statements as Income, consists of income from hire purchase finance business, income of financial leasing business, interest on consumer loans and other income. We derived income from discounting bills of exchange as well upto fiscal 2004. Presently we do not offer bill discounting facility. Income from hire purchase finance business includes financing charges, comprising of interest earned on financing two and three wheelers, consumer durables and personal computers and administration charges, comprising largely of processing fees for loan documentation, upfront interest and interest subsidy. Income from leasing business consists of lease rentals and lease equalisation. Financing charges An important measure of our performance is reflected in interest earned which comprises of the interest earned on our retail finance products, which presently comprise of two/three wheeler vehicle financing of BAL, consumer durables and personal computers. These loans are processed typically on fixed interest rates with an average tenure ranging from 12-36 months and except personal loans, are typically secured in nature. Since our main component of income arises out of interest earned on performing loans, our earnings have a large impact by the fluctuations in the interest rates as well as the volume of activity. Our disbursements for the last four years ended March 31, 2006 are as follows: (In Rs million)
For year ending March 31 For the period

2003

2004

2005

2006

Six months period ended September 30, 2006

Disbursements Two and three wheeler vehicles Consumer Durables Personal Computers Consumer Loans Bills discounting and others Total Disbursement 3,743 3,404 413 56 226 7,842 4,986 3,585 865 336 0 9,772 7,816 4,004 1,608 635 0 14,063 11,722 4,634 2,499 690 0 19,545

6,741.48 2,531.12 1,866.39 223.15 0 11,362.14

Note (1) (2) Personal Computers and Consumer Loans have been clubbed in Consumer Durables Segment during the fiscal period 2003. Includes financial leasing business done during the fiscal.

113

BAJAJ AUTO FINANCE LIMITED Interest Earned Similarly our interest earned for the last four years ended March 31, 2006, are as follows: (In Rs million)
For the period

For year ending March 31

2003

2004

2005

2006

Six months period ended September 30, 2006

1,876.54 86.14 0.00 138.43 2,101.11

Hire Purchase Finance Business Leasing Business Discount on Bills of exchange discounted Consumer Loans Total interest earned

935.00 13.20 3.50 3.26 954.96

1,039.08 17.42 0.02 23.19 1,079.71

1,326.27 37.31 0.00 89.68 1,453.26

1,246.53 18.72 0.00 59.44 1,324.69

Administration charges We derive income from the administrative charges in the form of processing fees for loan documentation, upfront interest built in the preEMI and interest subsidies from dealers. Upfront interest and interest subsidy varies depending on the scheme or on the target IRR. Our loan processing charges are variable in nature and therefore our processing fees are directly correlated to the number of applications processed by us. Lease Rental and Lease Equalisation Our income from leasing business comprises of lease rentals. We derive our lease rentals mainly from financial leasing of personal computers. While we have presently discontinued our financial leasing business, we expect to derive revenue from lease rental for next two to three years from the outstanding lease contracts as on date. The lease equalisation adjustment is the accounting adjustment required pursuant to guidance note on accounting for leases issued by the Institute of Chartered Accountants of India for the leases effected prior to April 1, 2001 and represents a matching annual charge or credit made to the profit and loss account for recovery of net investment of leased assets. Interest on consumer loans We also derive interest income from consumer loans. These are unsecured personal loans offered largely to our existing customers. These loans are processed typically on fixed interest rates with an average tenure ranging from 12-24 months. Other Income Our other income primarily comprises of penal interest, income from our investments, net increase in value of our investments. The Penal interest is charged for delayed repayment of loans (principal and interest) by our customers. Presently, this interest typically ranges from Rs. 100 to Rs. 300 per month per instalment. We derive income from investments in form of interest, dividend and net profit/loss on sale of our investments. The net increase in value of investments represents the accounting adjustment to reverse the provisioning on diminution in the value of the investments accounted earlier as per RBI guidelines. 114

BAJAJ AUTO FINANCE LIMITED Our other income for the last four years ended March 31, 2006 are as follows: (In Rs million)
For year ending March 31 For the period

2003

2004

2005

2006

Six months period ended September 30, 2006

222.80 0.00 6.67 42.95 10.46 0.25 0.00 0.00

Interest Dividend Income from units of mutual funds Miscellaneous Income Bad debt recoveries Surplus on sale of Assets Profit on sale of investments Profit on redemption of securities Provision for Doubtful debts written Back, net Provision for Diminution in Value of Investments written back, net Provisions no longer required

115.88 0.06 5.65 64.89 8.82 0.22 0.00 0.00

135.45 0.03 15.76 34.70 5.24 4.86 0.00 1.55

158.08 0.03 8.12 31.31 4.22 19.24 0.69 0.00

138.53 0.00 0.00 17.64 8.57 0.00 0.00 0.00

0.00

0.00

0.00

0.00

0.00

0.00 4.17

23.67 0.12

15.41 0.43

41.86 1.25

3.64 0.02

Significant Accounting Policy on Revenue Recognition Our Revenue can be broadly classified by interest income from hire purchase financing, interest income from financial leases, discount on bills of exchange and other income. The interest income on hire purchase financing business is recognised on accrual basis over the contract period. The interest income from leases is accounted on the basis of written down value method as prescribed under the Accounting Standard 19. The discount on the bills of exchange is accounted on the accrual basis. Other income, largely consisting of penal interest & income from investments is mainly accounted on accrual basis except in case of significant uncertainties. Expenses Interest and finance charges Our interest and finance charges consists of our interest payable on our borrowings, discount in respect of Commercial Papers and various bank charges comprising mainly of bank charges on non operative collection accounts and other bank charges like demand draft charges, bank charges and processing fees etc. Our 115

BAJAJ AUTO FINANCE LIMITED interest expense is affected by fluctuations in interest rates as well as the instrument of financing, the extent to which we fund our activities with low-interest deposits and the extent to which we rely on borrowings. Our interest expended for the last four years ended March 31, 2006, are as follows: (In Rs million)
For year ending March 31 2003 Interest: On Fixed Loans Other Discount in respect of Commercial Papers Bank Charges Total 132.57 37.40 82.41 58.67 36.97 167.20 25.15 408.36 2004 2005 2006 For the period

Six months period ended September 30, 2006

3.97 300.31

38.86 47.52 256.35

50.80 64.92 256.80

74.20 70.29 348.66

100.19 112.74 646.44

99.13 65.03 468.44

Other Expenses Our other expenses primarily comprise of our operating expenses, which include expenses for salaries and employee benefits, rent paid on premises, insurance, postage and telecommunications, printing and stationery, marketing commission, dealer incentives, recovery commission, brokerage on fixed deposits, other administrative expenses, loss on sale of investment and provisions and write offs. The provisions and write offs include the bad debts and write offs and provisions for the NPAs as per the RBI norms. With respect to the provisions for the NPAs, the company follows the directives of the Reserve Bank of India on Prudential Norms of Income recognition, Provision for bad and doubtful debts etc. issued from time to time. We have an aggressive policy of provisioning compared to the norm prescribed in the RBI Guidelines. We provide for the NPA based on 6 months and above outstandings as against the RBI guideline of 12 months on hire purchase finance receivables.

116

BAJAJ AUTO FINANCE LIMITED Our other expenses for the last four years ended March 31, 2006, are as follows (In Rs million)
For year ending March 31 For the period

2003

2004

2005

2006

Six months period ended September 30, 2006 148.44 0.04 13.70 85.47 14.76 119.00
0.00

Employee Emoluments Insurance Rent Miscellaneous Expenses Printing and Stationery Marketing Commission Credit Verification Charges Recovery Commission Stamp charges Directors Fees and Travelling Expenses Auditors Remuneration Brokerage on Fixed Deposits Dealer Incentive Loss on sale of investments Deficit on redemption of securities on maturity, net Provision for Receivables and doubtful overdue instalments, net Bad Debts written off Provision for Diminution in investments, net Total

75.03 0.23 7.48 67.11 11.02 66.41 12.81 26.16 0.00 0.29 0.75 5.10 108.64 0.00 0.91 9.34 46.68 5.58 443.54

93.74 0.23 8.90 70.56 13.65 73.53 5.40 42.73 0.00 0.33 0.74 1.12 106.40 0.53 0.00 4.61 60.89 0.00 483.36

126.15 0.23 11.17 81.67 17.86 95.93 0.00 61.32 0.85 0.57 1.02 0.26 97.30 0.00 4.85 37.83 130.28 0.00 667.29

205.50 0.38 18.90 117.92 19.57 161.47 0.00 130.49 24.75 0.47 0.98 0.17 153.32 0.36 0.00 99.03 280.80 0.00 1,214.11

93.52 15.76 0.45 0.46 0.07 85.39 0.00 0.00 94.09 181.20 0.00 852.35

Depreciation On Assets relating to Leasing Business Depreciation on Assets relating to Leasing Business is being provided at the rates worked on Straight Line Method over the primary period of Lease as stated in the lease agreement or the rates specified in Schedule XIV to the Companies Act, 1956, whichever is higher. Depreciation on Assets relating to leasing Business is being provided for as above, on pro-rata basis with reference to the month of commencement of the Lease Period. Depreciation on Assets relating to Leasing Business, sold during the year, is being provided for at their respective rates upto the month in which such asset is sold. On Other Assets Depreciation on Other Assets is being provided on Written Down Value Method at the rates specified in Schedule XIV to the Companies Act, 1956, and on additions during the year is provided for full year instead of pro-rating the same as required by the said Schedule. Depreciation on assets sold during the year is being provided for, at their respective rates up to the month in which such asset is sold. 117

BAJAJ AUTO FINANCE LIMITED Taxation Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is determined, subject to considerations of prudence, to reflect timing differences, being the difference between taxable incomes and accounting income that originates in one period and is capable of reversal in one or more subsequent fiscal periods. Deferred tax assets arising on account of unabsorbed depreciation or on the carry-forward of tax losses are recognized only to the extent that there is a virtual certainty, supported by convincing evidence, that sufficient future taxable income will be available against which such deferred tax assets can be offset. Comparison of significant items of income and expenditure for the last five years is given below: Six months period ended September 30, 2006 compared with the fiscal 2006. Summary Income Our income from operations constituted 88.72% of our total income for the period ended September 2006 as compared to 86.56% for the fiscal 2006. Our interest on hire purchase finance business constituted 83.49% of the total income for the six months period ended September 30, 2006 as compared to 77.31% for the fiscal 2006. Our interest on leasing business constituted 1.25% of the total income for the six months period ended September 30, 2006 as compared to 3.55% for the fiscal 2006. Our interest on consumer loans constituted 3.98% of the total income for the six months period ended September 30, 2006 as compared to 5.70% for the fiscal 2006. Expenditure Our operating expenses constituted 57.09% of our total income for the period ended September 2006 as compared to 50.02% for the fiscal 2006. The main increase was in staff cost, marketing commission, recovery commission, bad debts and provisions for NPA, net. Interest and finance charges Our interest and finance charges were 31.37% of our total income for the period ended September 2006 as compared to 26.63% for the fiscal 2006. The said increase is mainly on account of increase of 27.69% in the borrowing base during the period ended September 2006. Profit before taxation Our profit before taxation as a percentage to total income was 11.07% for the period ended September 2006 as compared to 22.64% for the fiscal 2006. This was mainly because of the increase in operating expenses and interest and finance charges Profit after taxation: As a result of the foregoing factors, our profit after taxation as a percentage to total income decreased to 7.16% for the period ended September 2006 as compared to 15.53% for the fiscal 2006. Fiscal Year Ended March 31, 2006 compared with the Fiscal Year Ended March 31, 2005 Summary: Our Income increased by 43.56% from Rs. 1,690.79 million for the fiscal 2005 to Rs. 2,427.35 million for the fiscal 2006, and our expenditure increased by 83.13% from Rs. 1,015.95 million for the fiscal 2005 to Rs. 1,860.55 million for the fiscal 2006. Such an increase in the income and expenditure is inter alia due to the following significant developments during the year: The increase in disbursals of 38.98% from Rs. 14,063 million in fiscal 2005 to Rs. 19,545 million in fiscal 2006. Increase in the customer base from 2.71 million customers to 3.44 million customers The increase in the number of employees as of the year end had gone up from 1,082 to 1,571. 118

BAJAJ AUTO FINANCE LIMITED Income Our Income increased by 43.56% from Rs. 1,690.79 million for the fiscal 2005 to Rs. 2,427.35 million for the fiscal 2006 . The increase in Income was primarily due to an increase in interest earned from operations Rs. 1,453.26 million for the fiscal 2005 to Rs. 2,101.11 million for the fiscal 2006 representing an increase of 44.58%. This was mainly due to the increase of 38.98% in the disbursements during the fiscal 2006 compared to fiscal 2005. Interest Earned The interest earned from hire purchase business increased by 41.49% from Rs. 1,326.27 million for the fiscal 2005 to Rs. 1,876.54 million for the fiscal 2006. Similarly the income from financial leasing business increased from Rs. 37.31 million for the fiscal 2005 to Rs. 86.14 million for the fiscal 2006 representing an increase of 130.88%. Also the interest earned on the consumer loans increased by 54.36% from Rs. 89.68 million for the fiscal 2005 to Rs. 138.43 million for the fiscal 2006. This increase was mainly due to the incremental business generated during the fiscal 2006 in consumer loans business. Other Income Our other income increased by 37.35% from Rs. 237.53 million for the fiscal 2005 to Rs. 326.24 million for the fiscal 2006. This increase was primarily due to an increase of 48.52% in penal interest collection from Rs. 139.46 million to Rs. 207.13 million. Expenditure Our Expenditure increased by 83.13% from Rs. 1,015.95 million for the fiscal 2005 to Rs. 1,860.55 million for the fiscal 2006. As a percentage of Income, our Expenditure increased from 60.09% for the fiscal 2005 to 76.65% for the fiscal 2006. Interest Expended Interest expended increased by 96.53% from Rs. 348.66 million for the fiscal 2005 to Rs. 646.44 million for the fiscal 2006. As a percentage of Income, interest expended increased from 20.62% for the fiscal 2005 to 26.63% for the fiscal 2006. This was mainly due to an increase in interest on other loans comprising of interest on bank borrowings in the form of cash credit, working capital demand loans, short term loans and debentures which had risen by 165.24% from Rs. 167.20 million to Rs. 408.36 million. Also, the bank borrowings during the period had increased significantly from Rs. 4,640 million as at March 31, 2005 to Rs. 8,721 million as at March 31, 2006 which is a rise of 87.95% contributing to an increase in the interest expense. Other Expenses Other expenses increased by 80.69% from Rs. 667.29 million for the fiscal 2005 to Rs. 1,214.11 million for the fiscal 2006. As a percentage of our Income, other expenses increased from 39.47% for the fiscal 2005 to 50.02% for the fiscal 2006. The increase was primarily due to an increase in other expenses like staff cost, marketing commission, recovery commission, bad debts, dealer incentive and provision for doubtful debts, net. The increases in the marketing commission and recovery commission of about 68.32% and 112.80% respectively were mainly due to an increase in the business and higher rates being charged for marketing and recovery during that period. Employee emoluments had increased by 62.89% from Rs. 126.16 million during the fiscal 2005 to Rs. 205.50 million during the fiscal 2006 due to a 45.19% increase in the number of employees from 1,082 to 1,571. Moreover, the company had added certain key managerial positions in marketing and information technology division to give a boost to the business. The provisions for lease debtors and doubtful overdue instalments under the Hire Purchase Agreements, net, increased from Rs. 37.83 million to Rs. 99.03 during the fiscal 2006. Such an increase was on account of delinquencies in the low down payment schemes floated by the company during the fiscal 2006 to capture the market share. 119

BAJAJ AUTO FINANCE LIMITED The bad debts during the fiscal 2006 increased by 115.54%. The reason behind such an increase was because the loss on re-possessed and sold goods had increased from Rs. 58.05 million to Rs. 182.84 million for the fiscal 2006. Moreover, the market value of the re-possessed goods had decreased leading to a further increase in the bad debts. Profit Before Tax As a result of the foregoing factors, profit before tax decreased by 16.08% from Rs. 654.78 million for the fiscal 2005 to profit before tax of Rs. 549.46 million for the fiscal 2006. As a percentage of Income, our profit before tax was 38.73% for the fiscal 2005 compared to 22.64% for the fiscal 2006. Net Profit After Tax As a result of the foregoing factors, our net profit after tax decreased by 9.09% from Rs. 414.55 million for the fiscal 2005 to Rs. 376.85 million for the fiscal 2006. As a percentage of Income, our net profit after tax decreased from 24.52% for the fiscal 2005 to 15.53% for the fiscal 2006. Fiscal Year Ended March 31, 2005 compared with the Fiscal Year Ended March 31, 2004 Summary Our Income increased by 29.95% from Rs. 1,301.09 million in fiscal 2004 to Rs. 1,690.79 million in fiscal 2005 and our expenditure increased by 37.26% from Rs. 740.16 million in fiscal 2004 to Rs. 1,015.95 million in fiscal 2005. Such an increase in the income and expenditure is inter alia due to the following significant developments during the year: The increase in disbursals of 43.91% from Rs. 9,772 million to Rs. 14,063 million. Increase in the customer base from 2.10 to 2.71 million customers. Expansion of the branch network from 60 branches to 90 branches during this period. The increase in the number of employees as of the year end had gone up from 839 to 1,082.

Our net profit after tax increased by 14.48% from Rs. 362.10 million in fiscal 2004 to Rs. 414.55 million in fiscal 2005 and was primarily due to an increase in the interest income. This can mainly be attributed to an increase in the customer base as well as an increase in the branches from 60 to 90. Income Our Income increased by 29.95% from Rs. 1,301.09 million in fiscal 2004 to Rs. 1,690.79 million in fiscal 2005. The increase in Income was primarily due to an increase in interest earned from operations by 34.60% from Rs. 1,079.71 million in fiscal 2004 to Rs. 1,453.26 million in fiscal 2005 which as a percentage of our income, increased from 82.98% in fiscal 2004 to 85.95% in fiscal 2005. Interest Earned The interest earned from hire purchase business increased by 27.64% from Rs. 1,039.08 million in fiscal 2004 to Rs. 1,326.27 million in fiscal 2005. Similarly leasing business increased 114.18% from Rs. 17.42 million in fiscal 2004 to Rs. 37.31 million in fiscal 2005. The leasing business income experienced an increase because the majority of the cases done in earlier years had accrued during the fiscal 2005 based on the contract period. The massive increase of 114.18% in income from leasing business can be attributed to increase in business during the fiscal 2005 as compared to fiscal 2004. During the fiscal 2005 the company disbursed under its leasing schemes an amount of Rs. 726.5 million as against Rs. 177.5 million during the fiscal 2004 which is an increase of 309.30%. Also the interest earned on the consumer loans increased by 286.72% from Rs. 23.19 million in fiscal 2004 to Rs. 89.68 million which again is due to the increases in disbursals during the year. As a percentage of our Income, Hire Purchase Finance Business decreased slightly from 79.86% in fiscal 2004 to 78.44% in fiscal 2005. This mainly is due to a huge growth in the consumer loan segment during that year. Our Leasing Business income as a percentage of our total income increased from 1.34% in fiscal 2004 to 2.21% in fiscal 2005. Similarly the interest on consumer loans accounted for an increase as a percentage of total income from 1.78% in 2004 to 5.30% in 2005. 120

BAJAJ AUTO FINANCE LIMITED Other Income Our other income increased by 7.30% from Rs. 221.38 million in fiscal 2004 to Rs. 237.53 million in fiscal 2005. This increase was primarily due to the increase of 20.67% in penal interest collections from Rs. 115.6 million in fiscal 2004 to Rs. 139.5 million in fiscal 2005. Also, the surplus on sale of assets increased from Rs. 4.86 million in fiscal 2004 to Rs. 19.24 million in fiscal 2005. Even though the other income increased, the income from units of mutual funds decreased by 48.48% from Rs. 15.76 million in fiscal 2004 to Rs. 8.12 million in fiscal 2005. Expenditure Our Expenditure increased from Rs. 740.16 million in fiscal 2004 to Rs. 1,015.95 million in fiscal 2005 which was an increase of 37.26%. As a percentage of Income, our Expenditure increased from 56.88% in fiscal 2004 to 60.08% in fiscal 2005. The increase in Expenditure was primarily due to an increase in the other expenses by 38.05% from Rs. 483.36 million in fiscal 2004 to Rs. 667.29 million in fiscal 2005. As a percentage of Income, our other expenses increased from 37.15% in fiscal 2004 to 39.47% in fiscal 2005. Interest Expended Interest expended increased by 35.77% from Rs. 256.80 million in fiscal 2004 to Rs. 348.66 million in fiscal 2005. As a percentage of Income, interest expended increased from 19.74% in fiscal 2004 to 20.62% in fiscal 2005. This was mainly due to an increase in interest on others loans which mainly comprises of interest on bank borrowings in the form of cash credit, working capital demand loans, and short term loans which had risen by 184.98% from Rs. 58.67 million to Rs. 167.20 million. The interest had risen because the bank borrowings increased from Rs. 1,907 million as at March 31, 2004 to Rs. 4,640 million as March 31, 2005. As a percentage of income, interest on other loans increased from 4.51% in fiscal 2004 to 9.88% in fiscal 2005. Other Expenses Other expenses increased by 38.05% from 483.36 million in fiscal 2004 to Rs. 667.29 million in fiscal 2005. As a percentage of our Income, other expenses increased from 37.15% in fiscal 2004 to 39.46% in fiscal 2005. The main attributers to such an increase were the staff cost increase, marketing commission, recovery commission, provision for receivables and doubtful overdue instalments, net. To elaborate further, the increase in other expenses was primarily due to an increase in Bad Debts written off by 113.96% from Rs. 60.89 million in fiscal 2004 to Rs. 130.28 million in fiscal 2005. As a percentage of Income, Bad Debts written off increased from 4.68% in fiscal 2004 to 7.71% in fiscal 2005. The reason behind such an increase was because the loss on re-possessed and sold goods had increased from Rs. 20.16 million to Rs. 58.05 million. Moreover, the market value of the re-possessed goods had decreased leading to a further increase in the bad debts. And our Employees emoluments increased by 34.57% from Rs. 93.74 million in fiscal 2004 to Rs. 126.15 million in fiscal 2005. This was primarily due to the increase in the number of employees from 939 to 1,082 during the fiscal 2005. Furthermore, the company added in key managerial positions in human resources and finance during the fiscal 2005. Lastly, the companys annual revision policy also contributed to an increase in the staff cost. Moreover, the provisions for receivables and doubtful overdue instalments, net increased from Rs. 4.61 million to Rs. 37.83 million. As a percentage of income, provisions for receivables and doubtful overdue instalments increased from 0.35% in fiscal 2004 to 2.24% in fiscal 2005. This was primarily due to a change in accounting policy by the company wherein the company started recognizing the non-performing assets on the basis of 6 months outstanding instead of the earlier practice of recognizing the same on the basis of 12 months outstanding.

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BAJAJ AUTO FINANCE LIMITED Profit Before Tax As a result of the foregoing factors, profit before tax increased by 20.77% from Rs. 542.18 million in fiscal 2004 to profit before tax of Rs. 654.78 million in the fiscal 2005. Net Profit After Tax As a result of the foregoing factors, our net profit after tax increased by 14.48% from Rs. 362.10 million in fiscal 2004 to Rs. 414.55 million in fiscal 2005. Fiscal Year Ended March 31, 2004 compared with the Fiscal Year Ended March 31, 2003 Summary Our Income increased by 12.68% from Rs. 1,154.65 million in fiscal 2003 to Rs. 1,301.09 million in fiscal 2004. And our expenditure increased from Rs. 699.89 million in fiscal 2003 to Rs. 740.16 million in fiscal 2004 which was an increase of 5.75%. Such an increase in the income and expenditure is inter alia due to the following significant developments during the year: The increase in disbursals by 24.61% from Rs. 7,842 million to Rs. 9,772 million Increase in the customer base from 1.61 to 2.10 million customers Expansion of the branch network from 57 branches to 60 branches during this period. The increase in the number of employees as of the year end had gone up from 701 to 839. Our net profit after tax increased by 33.02% from Rs. 272.21 million in fiscal 2003 to Rs. 362.10 million in fiscal 2004. This can mainly be attributed to an increase in the customer base as well as an increase in the branches. Income Our Income increased by 12.68% from Rs. 1,154.65 million in fiscal 2003 to Rs. 1,301.09 million in fiscal 2004. The increase in Income was primarily due to an increase in interest earned from operations by 13.06% from Rs. 954.96 million in fiscal 2003 to Rs. 1,079.71 million in fiscal 2004. Such an increase was primarily due to an incremental increase of 24.61 percent in the business generated during fiscal 2004 as compared to fiscal 2003. Interest Income The income from Hire Purchase Finance Business increased by 11.13% from Rs. 935.00 million in fiscal 2003 to Rs. 1,039.08 million in fiscal 2004. Similarly our Leasing Business income increased by 31.97% from Rs. 13.20 million in fiscal 2003 to Rs. 17.42 million in fiscal 2004. While, our interest on consumer loans increased substantially from Rs. 3.26 million in fiscal 2003 to Rs. 23.19 million in fiscal 2004 which as a percentage of our total income increased from 0.28% in fiscal 2003 to 1.78% in fiscal 2004. The increase in interest income on consumer loans is due to the substantial increase in consumer loans business during the fiscal 2004. Other Income Our other income increased by 10.86% from Rs. 199.69 million in fiscal 2003 to Rs. 221.38 million in fiscal 2004. This increase was primarily due to the increase of 36.00% in penal interest collections from Rs. 85.0 million in fiscal 2003 to Rs. 115.6 million in fiscal 2004. Also, the surplus on sale of assets increased substantially from Rs. 0.22 million in fiscal 2003 to Rs. 4.86 million. Moreover, the income from units of mutual funds increased from Rs. 5.65 million in fiscal 2003 to Rs. 15.76 million in fiscal 2004. Even though the other income increased, the miscellaneous income decreased by 46.52% from Rs. 64.89 million in fiscal 2003 to Rs. 34.70 million in fiscal 2004. Also, the provision no longer required decreased from Rs. 4.17 million to Rs. 0.12 million. Expenditure Our expenditure increased from Rs. 699.89 million in fiscal 2003 to Rs. 740.16 million in fiscal 2004 which was an increase of 5.75%. As a percentage of Income, our Expenditure decreased from 60.61% in fiscal 2003 to 56.89% in fiscal 2004. The increase in Expenditure was primarily due to an increase in other expenses of 8.98% from Rs. 443.54 million in fiscal 2003 to Rs. 483.36 million in fiscal 2004. 122

BAJAJ AUTO FINANCE LIMITED Interest and Finance Charges Interest expended increased merely by 0.18% from Rs. 256.35 million in fiscal 2003 to Rs.256.80 million in fiscal 2004. This meagre increase in the interest expenses was primarily due to the decline in interest on fixed loans by 37.84% from Rs. 132.57 million in fiscal 2003 to Rs. 82.41 million in fiscal 2004. As a percentage of Income, interest on fixed loans decreased from 11.48% in fiscal 2003 to 6.33% in fiscal 2004. This was mainly due to a decrease in inter-corporate loan block during the fiscal year 2004. The balance on the outstanding loan during the fiscal 2003 had been entirely repaid during the fiscal 2004. Moreover, the interest paid on the inter corporate loan during the fiscal 2003 was at a higher rate as compared to the interest rate during the fiscal 2004. Other Expenses Other expenses increased by 8.98% from Rs. 443.54 million in fiscal 2003 to Rs. 483.36 million in fiscal 2004. As a percentage of our Income, other expenses decreased from 38.41% in fiscal 2003 to 37.15% in fiscal 2004. The increase in the other expenses was primarily due to an increase in business by 24.61 percent. The increase in business contributed to a rising staff cost, marketing commission, recovery commission and bad debts. The increase in the other expenses was primarily due to an increase of 63.34% in Recovery Commission from Rs 26.16 million in fiscal 2003 to Rs. 42.73 million in fiscal 2004. As a percentage of Income, Recovery Commission increased from 2.27% in fiscal 2003 to 3.28% in fiscal 2004. Further there was an increase of 30.44% in Bad Debts written off from Rs 46.68 million in fiscal 2003 to Rs. 60.89 million in fiscal 2004. And Employees emoluments increased by 24.94% from Rs. 75.03 million in fiscal 2003 to Rs. 93.74 million in fiscal 2004. This was primarily due to an increase of 19.69% in the number of employees from 701 to 839. Moreover, the company has an annual salary revision policy which had also contributed to an increase in staff cost of the company. Profit Before Tax As a result of the foregoing factors, profit before tax increased by 27.78% from Rs. 424.32 million in fiscal 2003 to a profit before tax of Rs. 542.18 million in the fiscal 2004. As a percentage of Income, our profit before tax was 36.75% in fiscal 2003 compared to 41.67% in fiscal 2004. Net Profit after Tax As a result of the foregoing factors, our net profit after tax increased by 33.02% from Rs. 272.21 million in fiscal 2003 to Rs. 362.10 million in fiscal 2004. As a percentage of Income, our net profit after tax increased from 23.57% in fiscal 2003 to 27.83% in fiscal 2004. Liquidity and Capital Resources The following table sets forth the statement of cash flows as follows: (In Rs million)
For year ending March 31 For the period Six months period ended September 30, 2006

2004

2005

2006

Cash flow from/ (used in) operating activities Cash flow from/ (used in) investing activities Cash flow from/ (used in) financing activities Net change in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents

788.39 35.79 (747.51) 76.67 171.10 247.77

240.77 102.63 (183.61) 159.79 247.77 407.56

(4,450.94) (2.50) 4,702.23 248.79 407.56 656.35

(1,894.49) (5.77) 2,255.77 355.51 656.35 1,011.86

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BAJAJ AUTO FINANCE LIMITED Our net cash flow from operating activities reflects interest received during the year from advances and other income and non-cash charges such as depreciation and provisions (mainly for non-performing assets) made during the period. In addition, our net cash flow from operating activities reflects changes in operating assets and liabilities, including advances, deposits and borrowings, as well as other assets and liabilities. The Companys net cash flow from operating activities was Rs. 788.39 million, Rs. 240.77 million, Rs. (4,450.94) million and Rs. (1,894.49) million for fiscal 2004, 2005, 2006 and six months period ended September 30, 2006 respectively. Cash Flow from Investing Activities Our net cash flow from investing activities was Rs. 35.79 million, Rs. 102.63 million, Rs. (2.50) million and Rs. (5.77) million for fiscal 2004, 2005, 2006 and six months period ended September 30, 2006 respectively. Cash Flow from Financing Activities Our net cash flow from financing activities was Rs. (747.51) million, Rs. (183.61) million, Rs. 4,702.23 million and Rs. 2,255.77 million for fiscal 2004, 2005, 2006 and six months period ended September 30, 2006 respectively. Capital Expenditure Apart from our proposed investment estimated at approximately Rs. 500 million in upgrading our Information Technology systems and investments in our office infrastructure, we do not expect to require, substantial capital expenditure in the future. Our fixed assets mainly comprise of owned assets, computers, furniture and fixtures, office equipments and vehicles. Capital The business is subject to the capital adequacy requirements of the RBI. We are required to maintain a minimum capital ratio of 12% is prescribed under the RBI guidelines based on total capital to risk weighted assets. Our Capital Adequacy ratios are as follows: (Rs million, except %)
For year ending March 31 2004 Tier 1 Capital Tier 2 Capital Total Tier 1 and 2 Capital Risk weighted assets on balance sheet Tier 1 Capital to Risk assets ratio Tier 2 Capital to risk assets ratio Total Capital to risk assets ratio 2317.90 0.00 2317.90 7081.20 32.73% 0.00% 32.73% 2005 2591.42 0.00 2591.42 11065.50 23.42% 0.00% 23.42% 2006 4826.98 0.00 4826.98 17165.10 28.12% 0.00% 28.12% For the period Six months period ended September 30, 2006

4934.10 0.00 4934.10 20276.00 24.03% 0.00% 24.03%

Our capital adequacy ratio was 32.73% as of March 31, 2004, 23.42% as of March 31, 2005, 28.12% as of March 31, 2006 and 24.03% as of September 30, 2006. We have been able to maintain the required capital adequacy ratio prescribed by RBI.

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BAJAJ AUTO FINANCE LIMITED Financial Condition Asset Quality As on September 30, 2006, out of the total asset base of Rs. 20,257.70 million, 97% have been classified as standard assets. The following table sets forth the percentage of the Classification of Assets (Gross) of the Company for the last three years are as follows: (Rs. million, except %)
For year ending March 31 Classification of Assets 2004 6,927.00 36.50 5.80 24.00 0.95% 60.89 127.19 2005 10,773.80 213.60 6.00 16.90 2.15% 130.28 366.78 2006 16,561.90 549.30 9.40 13.80 3.34% 280.80 853.30 For the period Six months period ended September 30, 2006

Standard Assets Sub-standard Assets Doubtful Assets Loss Assets Gross NPA / Gross Assets Amounts written off Total

19,365.30 854.80 21.50 16.10 4.41% 181.20 1,073.60

The company is following the RBI guidelines for provisioning of its receivables. It can be seen from the above that the company has been maintaining a substantially low percentage of NPAs till fiscal 2004. From the fiscal 2005, as a matter of prudence, the company has changed its policy of recognising the NPAs from 12 months outstanding basis to 6 months basis which has resulted in an increase of NPAs from the fiscal 2005. Assets Net assets increased by 12.12% from Rs. 2,067.42 million in fiscal 2003 to Rs. 2,317.90 in fiscal 2004. Net assets increased by 11.80% from Rs. 2,317.90 million in fiscal 2004 to Rs. 2,591.42 in fiscal 2005. Net assets increased by 86.27% from Rs. 2,591.42 million in fiscal 2005 to Rs. 4,826.98 million in fiscal 2006. Net assets increased by 2.21% from Rs. 4,826.98 million in fiscal 2006 to Rs. 4,933.84 million as on September 30, 2006. Net investments increased by 6.98% from Rs. 276.62 million in fiscal 2003 to Rs. 295.93 million in fiscal 2004. Net investments decreased by 21.83% from Rs. 295.93 million in fiscal 2004 to Rs. 231.33 million in fiscal 2005. Net investments increased by 16.30% from Rs. 231.33 million in fiscal 2005 to Rs. 269.03 million in the fiscal 2006. Net investments increased by 1.35% from Rs. 269.03 million in fiscal 2006 to Rs. 272.67 million as on September 30, 2006. Current assets comprising of customer receivables and loans and advances increased by 21.02% from Rs. 7,480.52 million in fiscal 2003 to Rs. 9,052.73 million in fiscal 2004. Current assets increased by 53.93% from Rs. 9,052.73 million in fiscal 2004 to Rs. 13,935.37 million in fiscal 2005. Current assets increased from Rs. 13,935.37 million in the fiscal 2005 to Rs. 21,879.16 million in the fiscal 2006 which was an increase of 57.00%. Current assets increased from Rs. 21,879.16 million in the fiscal 2005 to Rs. 26,051.93 million as on September 30, 2006 which was an increase of 19.07%. These increases were mainly due to the incremental business done by the company during these years which has resulted into an increase in the receivable base. Gross non performing assets increased by 13.72% from Rs. 58.30 million in fiscal 2003 to Rs. 66.30 in fiscal 2004. Gross non performing assets increased by 256.71% from Rs. 66.30 million in fiscal 2004 to Rs. 236.50 in fiscal 2005. Gross non performing assets were Rs. 572.50 million in the fiscal 2006. Gross NPAs amounted to Rs. 892.50 million as on September 30, 2006. The Company has been maintaining substantially low NPAs till fiscal 2004. From the fiscal 2005, as a matter of prudence, the company has changed its policy of recognising the NPAs from 12 months outstanding basis to 6 months basis which has resulted in an increase of NPAs from the fiscal 2005. 125

BAJAJ AUTO FINANCE LIMITED Liabilities Total liabilities increased by 23.08% from Rs. 5,737.12 million in fiscal 2003 to Rs. 7,061.24 in fiscal 2004. Total liabilities increased by 63.61% from Rs. 7,061.24 million in fiscal 2004 to Rs. 11,553.17 in fiscal 2005. Total liabilities increased by 50.30% from Rs. 11,553.17 million in the fiscal 2005 to Rs. 17,241.65 million in the fiscal 2006. Total liabilities increased by 23.96% from Rs. 17,241.65 million in the fiscal 2006 to Rs. 21,402.75 million as on September 30, 2006. These increases were mainly due to the incremental business done by the company during these years which has resulted into an increase in the liabilities. Indebtedness Set forth is a summary of our aggregate unsecured loans as on September 30, 2006 (In Rs million)
Classification of Borrowing Fixed Deposit Short Term Loan Commercial Papers Total

Outstanding as on September 30, 2006 101.96 2,000.00 3,300.00 5,401.96

Other matters Unusual or infrequent events and transactions Other than as described elsewhere in this Letter of Offer, particularly in Managements Discussion and Analysis of Financial Condition and Results of Operations, to our knowledge there are no events that may be described as unusual or infrequent events and transactions. Significant economic / regulatory changes Other than Discussion significant continuing as described elsewhere in this Letter of Offer, particularly in Risk Factors and Managements and Analysis of Financial Condition and Results of Operations, to our knowledge there are no economic / regulatory changes that materially affect or are likely to affect the income from operations.

Known trends and uncertainties Other than as described elsewhere in this Letter of Offer, particularly in Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations, to our knowledge there are no trends or uncertainties that have or had or are expected to have a material adverse impact on revenues or income of the Company from continuing operations. Future relationship between costs and income Other than as described elsewhere in this Letter of Offer, particularly in Managements Discussion and Analysis of Financial Condition and Results of Operations, to our knowledge there are no known factors which will have a material adverse impact on the operation and finances of the Company and its subsidiaries, taken as a whole. Total turnover of each industry segment in which the company operates The company is engaged primarily in the business of financing and accordingly there are no separate reportable segments as per Accounting Standard-17 dealing with Segment Reporting. New product or business segment Other than as described elsewhere in this Letter of Offer, particularly in Business section to our knowledge there are no new business segments or material new products planned. 126

BAJAJ AUTO FINANCE LIMITED Seasonality of business Other than as described elsewhere in this Letter of Offer, particularly in Managements Discussion and Analysis of Financial Condition and Results of Operations, the business is not seasonal. Dependence on single or few customers We are not dependant on any particular customer however we are dependent on Bajaj Auto Limited in the two wheeler segment which constitutes 17.72% of our income. Any adverse changes in the operations of Bajaj Auto Limited and the two wheeler segment may have adverse impact on our business and financial performance. Competitive conditions We face competition in all its principal areas of business from Indian and foreign commercial banks, and finance companies. See Business - Competition on page ix. Significant development after March 31, 2006 that may affect our future results of operations Except the preferential allotment to our promoters and certain investors as detailed on page 128 in section titled Material Developments, to our knowledge no circumstances have arisen since the date of the last financial statements as disclosed in this Letter of Offer which materially and adversely affect or are likely to affect, our trading or profitability, or the value of our consolidated assets or the ability to pay our material liabilities within the next twelve months. Except as stated herein above, there is no subsequent development after the date of the Auditors Report which we believe is expected to have a material impact on reserves, profits, earning per share and book value of our business.

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BAJAJ AUTO FINANCE LIMITED

MATERIAL DEVELOPMENTS
1. Information as required by the Government of India, Ministry of Finance circular No. F2/5/SE/76 dated February 5, 1977 as amended vide their circular of even number dated March 8, 1977 and as per Clause 6.48 of SEBI DIP Guidelines: 1. Working Results of the Company Financial results for the period from April 30, 2006 to October 31, 2006. (In Rs million)
Total Sales (Income from Hire Purchase, Leasing etc.) Other Income Total Income PBDIT Interest Provision for Depreciation Profit/Loss Before Tax Provision for Tax Net Profit 1753.88 199.80 1953.68 877.28 572.18 8.50 296.60 100.48 196.12

2.

Save as stated elsewhere in the Letter of Offer, there are no material changes and commitments, which are likely to affect the financial position of the Company since September 30, 2006 (i.e. last date up to which audited information is incorporated in the Letter of Offer). a) Week end prices of Equity Shares of the Company for the last four weeks on the BSE and NSE are as below:
Closing Rate BSE (Rs.) 442.87 384.78 370.90 365.80 Closing Rate NSE (Rs.) 442.03 386.09 369.00 362.50

3.

Week Ended on November 3 November 10 November 17 November 24

b)

As per the notice no. 20061106-23 issued by the BSE, the transactions in the equity shares of the Company would be done on an ex-right basis with effect from November 13, 2006. The closing price of Equity Shares of the Company on the BSE and NSE on November 13, 2006 was Rs. 387.80 per equity share and Rs. 387.90 per equity share (ex-rights Price) respectively. Highest and Lowest Price of the Equity Share of the Company on BSE and NSE for the last four weeks:
Highest (Rs.) 442.87 442.03 Date November 11, 2006 November 11, 2006 Lowest (Rs.) 351.60 350.90 Date November 22, 2006 November 22, 2006

c)

BSE NSE

Defaults in the payment/refunds of debentures, fixed deposits, interest on fixed deposits, debenture interest and institutional dues There are no defaults, non-payment/ overdues of statutory dues, institutional/Company dues and dues towards holders of debentures, bonds and fixed deposits and arrears of preference shares, etc, other than unclaimed liabilities of the Company, its subsidiaries, its other ventures, promoters, Group companies and companies promoted by the promoters. 128

BAJAJ AUTO FINANCE LIMITED

INFRASTRUCTURE
Our registered office situated at C/o. Bajaj Auto Finance Limited, Mumbai-Pune Road, Akurdi, Pune 411 035. In addition, we have 108 branches across 20 States (including Union Territories). We hold these premises on lease/leave and licence basis. We further have 149 properties on lease/leave and licence basis and from where we operate our offices and Shoppees. We also have 117 properties on lease/leave and licence basis which are used as godowns to store vehicles seized by us from defaulting customers. We also own one residential property in Pune currently given on leave and license to Bajaj Allianz Life Insurance Company Limited.

129

BAJAJ AUTO FINANCE LIMITED

FINANCIAL INDEBTEDNESS
Set forth below is a Brief Summary of our aggregate Borrowings as of September 30, 2006.

Category of Borrowing Short Term Loans (Unsecured) Short Term Loans (Secured) Long Term Loans (Secured) Cash Credit facilities and Working Capital Demand Loans (WCDL) Fixed Deposits Commercial Paper Stand alone WCDL backed Non Convertible Debentures Interest accrued and due on above bank loans Total
Restrictive covenants with respect to our borrowings

Outstanding Amount (in Rs. million) 2000 1240 510 4824 102 2250 1050 1,000 33 13009

In terms of some of the agreements with our lenders for the above borrowings, we are required to observe certain restrictive covenants, including the following: We cannot, without the prior consent of the respective lender: Make any alterations to our Memorandum or Articles; Change or in any way alter our Capital Structure; Effect any scheme of amalgamation or reconstruction; Implement any new scheme of expansion or take up an allied line of business or manufacture; Withdraw or allow to be withdrawn any moneys brought in by the Promoters and directors of the Promoters or our Directors; Declare a dividend or distribute profits, except where the instalments of principal and interest payable to the lender are being paid regularly and there are no irregularities whatsoever in respect of the same; Invest any funds by way of deposits, or loans or in share capital of any other concern so along as any money is due to the lender.

In addition, some of our lenders have the right to appoint and / or remove from time to time a Director or Directors on the Board of Directors as a nominee Director to protect the interests of the lender. Such Director or Directors shall not be liable to retire by rotation.

130

BAJAJ AUTO FINANCE LIMITED

SECTION VI : LEGAL AND OTHER INFORMATION

OUTSTANDING LITIGATIONS AND DEFAULTS Except as described below, there are no outstanding litigation, suits or criminal or civil prosecutions, proceedings or tax liabilities against our Company, our Directors, our Promoters or group companies and there are no defaults, non payment of statutory dues, over dues to banks/ financial institutions, defaults against banks/ financial institutions, defaults in dues payable to holders of any debentures, bonds or fixed deposits, and arrears on preference shares issued by our Company (including past cases where penalties may or may not have been awarded and irrespective of whether they are specified under paragraph (i) of part 1 of Schedule XIII of the Companies Act, 1956). Litigation Litigations filed against the Company Criminal cases 1. Shashikant Jadhav has filed complaint No. 619 of 2004 in the Court of the JMFC at Solapur against the Company and others for offences of cheating in respect of the alleged non-delivery of a personal computer financed by the Company. The matter is pending disposal. Barnali Chatterjee has filed the complaint No. 1 of 2003 in the Court of the JMFC at Hooghly against the Company and others for offences of cheating in respect of the alleged non-delivery of a personal computer financed by the Company. The matter is pending disposal. Nadim Akhtar Abdul has filed complaint No. 733 of 2004 in the Court of the Chief Judicial Magistrate at Jalgaon against the Company and others for the alleged theft of a vehicle repossessed by the Company as well as some goods kept in the vehicle. The Company has filed its say in the matter. The matter is pending disposal. Sanjay Bannerjee has filed complaint No. 63 of 2002 in the Court of the Sub-Divisional Judicial Magistrate at Barrackpore against the Company and others for the offences of cheating by allegedly changing the dates on cheques issued by him and presenting the same for payment. The matter is pending disposal.

2.

3.

4.

Tax proceedings Interest Tax 1. The Additional Commissioner of Income Tax Special Range 6, Pune passed an assessment order dated March 29, 2001 assessing the interest tax payable by the Company at approximately Rs. 8.33 million as against approximately Rs. 7.55 million assessed by the Company for the assessment year 1998-99 and passed an order for refund of approximately Rs. 0.17 million to the Company after giving credit to the interest tax pre-paid by the Company. The Company filed an appeal dated April 26, 2001 before the CIT (A) III, Pune inter alia on the grounds that interest on interest and interest on delayed repayments as well as interest on non-performing assets had wrongly been included in the chargeable interest and that the computation of interest tax liability incorrect. The CIT (A) III passed an order dated October 31, 2001 partly allowing the appeal. The Assistant Commissioner of Income Tax Circle 8, Pune filed an appeal dated January 3, 2002 before the ITAT, Pune Bench against this order of the CIT (A) III on the grounds that the interest on interest and interest on delayed repayments as well as interest on non-performing assets had been wrongly allowed by the CIT(A) III. The Company has filed its cross-objections in this appeal. The matter is pending disposal. The Joint Commissioner of Income Tax Special Range 6, Pune passed an assessment order dated March 29, 2000 assessing the interest tax payable by the Company at approximately Rs. 9.37 million as against approximately Rs. 8.28 million assessed by the Company for the assessment year 1997-98 and passed an order for refund of approximately Rs. 0.13 million to the Company after giving credit to the interest tax pre-paid by the Company. The Company filed an appeal dated April 29, 2000 before the CIT (A) III, Pune inter alia on the grounds that interest on interest and interest on delayed repayments as well as 131

2.

BAJAJ AUTO FINANCE LIMITED interest on non-performing assets had wrongly been included in the chargeable interest. The CIT (A) III passed an order dated October 29, 2001 partly allowing the appeal. The Assistant Commissioner of Income Tax Circle 8, Pune filed an appeal dated January 3, 2002 before the ITAT, Pune Bench against this order of the CIT (A) III on the grounds that the interest on interest and interest on delayed repayments as well as interest on non-performing assets had been wrongly allowed by the CIT(A) III. The Company has filed its cross-objections in this appeal. The matter is pending disposal. 3. The Joint Commissioner of Income Tax Special Range 1, Pune passed an assessment order dated November 30, 1998 assessing the interest tax payable by the Company at approximately Rs. 7.16 million as against approximately Rs. 6.25 million assessed by the Company for the assessment year 1996-97 and passed an order demanding an amount aggregating approximately Rs. 0.46 million from the Company after giving credit to the interest tax pre-paid by the Company. The Company filed an appeal dated January 5, 1999 before the CIT (A) III, Pune inter alia on the grounds that interest on interest and interest on delayed repayments as well as interest on non-performing assets, interest on car deposits and interest from shareholders on share application money had wrongly been included in the chargeable interest and also that the computation of interest tax liability was incorrect. The CIT (A) II passed an order dated February 23, 2001 partly allowing the appeal. The Additional Commissioner of Income Tax Special Range 6, Pune filed an appeal dated April 27, 2001 before the ITAT, Pune Bench against this order of the CIT (A) II on the grounds that the interest on interest and interest on delayed repayments as well as interest on non-performing assets had been wrongly allowed by the CIT (A) II. The Company has filed its cross-objections in this appeal. The matter is pending disposal. The Deputy Commissioner of Income Tax Special Range I, Pune passed an assessment order dated November 13, 1997 assessing the interest tax payable by the Company at approximately Rs. 5.69 million as against approximately Rs. 5.02 million assessed by the Company for the assessment year 1995-96 and passed an order for refund of approximately Rs. 0.71 million to the Company after giving credit to the interest tax pre-paid by the Company. The Company filed an appeal dated January 21, 1998 before the CIT (A) III, Pune inter alia on the grounds that interest received from the income tax department and interest on interest and interest on delayed repayments as well as interest on other advances had wrongly been included in the chargeable interest and the computation of interest tax liability was incorrect. The CIT (A) III passed an order dated August 30, 1999 partly allowing the appeal. The Company filed an appeal dated October 25, 1999 before the ITAT, Pune Bench inter alia on the grounds that interest on car deposits had been wrongly disallowed and the computation of interest tax liability was incorrect. The Joint Commissioner of Income Tax Special Range 6, Pune also filed an appeal dated November 5, 1999 before the ITAT, Pune Bench against this order of the CIT (A) III inter alia on the grounds that the interest on interest and interest on delayed repayments wrongly allowed by the CIT (A) III. Both appeals are pending disposal.

4.

Income Tax 1. The Deputy Commissioner of Income Tax Circle 8, Pune passed an assessment order dated October 31, 2006 assessing the income tax payable by the Company at approximately Rs. 198.74 million for the assessment year 2004-2005 and passed an order demanding approximately Rs. 44.66 million from the Company after giving credit for the tax pre-paid by the Company. The Company is in the process of filing an appeal before the CIT (A) III, Pune. The Additional Commissioner of Income Tax Range 9, Pune passed an assessment order dated March 31, 2006 assessing the income tax payable by the Company at approximately Rs. 447.10 million for the assessment year 2003-2004 and passed an order demanding approximately Rs. 5.75 million from the Company after giving credit for the tax pre-paid by the Company. The Company filed an appeal dated April 28, 2006 before the CIT (A) III, Pune inter alia on the grounds that the interest on non-performing assets had been wrongly included and bad debts written off and prior period expenses had been wrongly disallowed as well as expenditure incurred for earning dividend income and disallowance of depreciation on assets given on lease under financial lease. The appeal is pending disposal. 132

2.

BAJAJ AUTO FINANCE LIMITED 3. The Assistant Commissioner of Income Tax Circle 9, Pune passed an assessment order dated February 17, 2005 assessing the income tax payable by the Company at approximately Rs. 177.09 million for the assessment year 2002-2003 and passed an order demanding approximately Rs. 6.31 million from the Company after giving credit for the tax pre-paid by the Company. The Company filed an appeal dated April 06, 2005 before the CIT (A) III, Pune inter alia on the grounds that the interest on non-performing assets had been wrongly included and bad debts written off and prior period expenses had been wrongly disallowed as well as expenditure incurred for earning dividend income. The CIT (A) passed an order dated October 28, 2005 partly allowing the appeal. The Company filed an appeal dated January 1, 2006 before the ITAT, Pune Bench inter alia on the grounds of partial disallowance of prior period expenses and expenditure incurred for earning exempt income. The appeal is pending disposal. The Additional Commissioner of Income Tax Range 6, Pune passed an assessment order dated March 3, 2004 assessing the income tax payable by the Company at approximately Rs. 173.10 million for the assessment year 2001-2002 and passed an order demanding approximately Rs. 6.12 million from the Company after giving credit for the tax pre-paid by the Company. The Assistant Commissioner of Income Tax also passed an order dated July 13, 2004 for rectification of mistake and raised a demand of approximately Rs. 1.10 million. The Company filed appeals dated August 30, 2004 before the CIT (A) III, Pune inter alia on the grounds that the interest on non-performing assets had been wrongly included and bad debts written off and prior period expenses had been wrongly disallowed as well as expenditure incurred for earning dividend income. The CIT (A) passed orders dated February 14, 2005 and February 17, 2005 partly allowing the appeals. The Company filed an appeal dated May 14, 2005 before the ITAT, Pune Bench inter alia on the grounds of disallowance of prior period expenses and expenditure incurred for earning dividend income. The appeal is pending disposal. The Assistant Commissioner of Income Tax Circle 8, Pune passed an assessment order dated March 28, 2002 assessing the income tax payable by the Company at approximately Rs. 117.26 million for the assessment year 1999-2000 and passed an order demanding Rs. 0.85 million to the Company after giving credit for the tax pre-paid by the Company. The Company filed an appeal dated May 3, 2002 before the CIT (A) III, Pune inter alia on the grounds that the income on non-performing assets had been wrongly included and bad debts written off and prior period expenses had been wrongly disallowed. The CIT (A) III passed an order dated January 9, 2004 partly allowing the appeal. The Assistant Commissioner of Income Tax Circle 9 filed an appeal dated March 23, 2004 before the ITAT, Pune Bench on the grounds of allowing disallowance of income not accounted on non-performing assets. The Company has filed its cross objections to the appeal inter alia on the grounds that disallowing certain expenses as prior period expenses. The appeal is pending disposal. The Additional Commissioner of Income Tax Special Range 6, Pune passed an assessment order dated December 13, 2000 assessing the income tax payable by the Company at approximately Rs. 115.75 for the assessment year 1998-1999 and passed an order demanding approximately Rs. 5.88 million from the Company after giving credit for the tax pre-paid by the Company. The Company filed an appeal dated February 3, 2001 before the CIT (A) II, Pune inter alia on the grounds that the income on non-performing assets had been wrongly included and bad debts written off and prior period expenses had been wrongly disallowed. The CIT (A) II passed an order dated May 30, 2001 partly allowing the appeal. The Assistant Commissioner of Income Tax Circle 9, Pune filed an appeal dated March 4, 2004 before the ITAT, Pune Bench inter alia on the grounds of allowing disallowance of prior period expenses. The appeal is pending disposal. The Joint Commissioner of Income Tax Special Range 6, Pune passed an assessment order dated March 7, 2000 assessing the income tax payable by the Company at approximately Rs. 119.49 million for the assessment year 1997-98 and passed an order demanding approximately Rs. 20.07 million from the Company after giving credit for the tax pre-paid by the Company. The Company filed an appeal dated April 13, 2000 before the CIT (A) II, Pune inter alia on the grounds that the income on non-performing assets had been wrongly included and bad debts written off, depreciation on plant and machinery and prior period expenses had been wrongly disallowed. The CIT (A) passed an order dated May 30, 2001 133

4.

5.

6.

7.

BAJAJ AUTO FINANCE LIMITED partly allowing the appeal. The Additional Commissioner of Income Tax Special Range 6, Pune filed an appeal dated July 27, 2001 before the ITAT, Pune Bench inter alia of allowing interest on non-performing assets. The Assistant Commissioner of Income Tax Circle 9, Pune filed an appeal dated October 8, 2003 before the ITAT, Pune Bench inter alia on the grounds of allowing disallowance of prior period expenses and bad debts. The Company has also filed its cross objections to the appeal. The appeal is pending disposal. 8. The Joint Commissioner of Income Tax Special Range 1, Pune passed an assessment order dated December 24, 1998 for the assessment year 1996-97. The Company filed an appeal dated February 8, 1999 before the C IT (A) II, Pune inter alia on the grounds that the interest income was not recognised on non-performing assets, provision for doubtful debts, expenditure on public issue of shares, bad debts written off, and deduction of interest tax liabilities had been wrongly disallowed. The CIT(A) II passed an order dated March 1, 2001 partly allowing the appeal. The Additional Commissioner of Income Tax Special Range 6, Pune filed an appeal dated May 31, 2001 before the ITAT, Pune Bench inter alia on the grounds of allowing interest on non-performing assets. The Company has also filed its cross objections to the appeal. The appeal is pending disposal. The Deputy Commissioner of Income Tax Special Range 1, Pune passed an assessment order dated March 3, 1998 for the assessment year 1995-96. The Company filed an appeal dated April 7, 1998 before the C IT (A), Pune inter alia on the grounds that provision for doubtful debts and expenditure on the public issue was wrongly disallowed and interest income on share application money had been wrongly included. The CIT(A) II passed an order dated December 31, 1999 partly allowing the appeal. The Company filed an appeal dated April 18, 2000 before the ITAT, Pune Bench. The appeal is pending disposal. The Commissioner of Central Excise, Service Tax Cell, Central Excise Commissionerate, Pune has issued the assessment order dated May 15, 2006 to the Company demanding an amount aggregating to approximately Rs. 521.21 million as the service tax on interest charges, documentation fees and charges levied by the Company between July 16, 2001 and March 31, 2005 along with penalty thereon. The company has also received a show cause notice on the same matter for the period 1st April 2005 to 31st March 2006 amounting to Rs. 164.85 million The company has filed an application for grant of stay and waiver of pre deposit of the aforementioned service tax and penalty with CESTAT, West Zonal Bench, Mumbai. The stay application was heard on 2nd November 2006 and the Honble Tribunal Bench was pleased to completely waive the pre deposit unconditionally, as per the operative portion of the Stay Order pronounced in the open court. A certified copy of the Stay Order has been received by the company on November 17, 2006. Sundeep Polymers Pvt. Ltd. has filed suit No. 881 of 1999 in the court of the Civil Judge, Senior Division, Nagpur against the Company and others for an amount aggregating approximately Rs. 796.39 million allegedly due to it from Bajaj Auto Limited, Rahul Bajaj and Rajiv Bajaj as compensation and damages on account of the breach of a promise to treat it as a life time supplier for BAL. Subsequently, Sundeep Polymers Pvt. Ltd. amended the suit claiming an amount aggregating approximately Rs. 8.43 million from the Company. The Company has submitted its rejoinder denying its liability. The case has been transferred from High Court, Nagpur to Supreme Court and matter is pending disposal. Prakash Industries Limited has filed suit No. 1512 of 1997 in the court of the Civil Judge, Senior Division, Pune against the Company for an amount aggregating approximately Rs. 10.20 million with interest thereon being the losses suffered by it on account of the alleged defects in the equipments (wind mills) leased by the Company. The Company has filed its written statement and the suit is posted for cross examination on December 4, 2006. Further, there are approximately 9 suits filed against the Company in various fora for amounts aggregating approximately Rs. 0.5 million. These suits are in various stages of pendency. In addition, there are approximately 45 suits filed against the Company in various fora where the financial impact cannot be quantified. These suits are in various stages of pendency. 134

9.

Service Tax 1.

Civil Cases 1.

2.

3. 4.

BAJAJ AUTO FINANCE LIMITED Consumer cases 1. Dilshad Ahmed has filed a complaint before the District Consumer Redressal Forum at Lucknow for an amount aggregating approximately Rs. 0.11 million as damages and compensation for the mental agony suffered by him in respect of an allegedly defective motorcycle sold to him and financed by the Company. The complainant has also sought replacement of the motorcycle. The Company has filed its reply in the matter denying its liability. The matter is pending disposal. N Janairaman has filed a complaint before the District Consumer Redressal Forum at Erode for an amount aggregating approximately Rs. 0.36 million as compensation in respect of the failure of the dealer in question to register and insure the vehicle purchased by him. The Company filed an application dated March 22, 2004 seeking acquittal from the complaint. The application has been rejected and the complaint is pending disposal. Kesavan Nair with another person has filed a complaint before the District Consumer Redressal Forum at Pathanamthitta for an amount aggregating approximately Rs. 0.1 million as compensation under an insurance policy on account of the accidental death of their son and Rs. 0.05 million as compensation for the hardships suffered by them due to non payment of the same. The Company has filed its reply in the matter denying its liability. The matter is pending disposal. Dwarka Prasad Purohit has filed a complaint before the District Consumer Redressal Forum at Devas for an amount aggregating approximately Rs. 0.11 million as compensation under an insurance policy on account of theft of the vehicle financed by the Company. The Company has filed its reply in the matter denying its liability. The matter is pending disposal. The District Consumer Redressal Forum at Firojabad has vide its letter dated January 28, 2005 on behalf of one Alok A. Thomas to the Company claimed a compensation for an amount aggregating approximately Rs. 0.10 million as compensation for the mental agony and financial loss caused to him on account of the alleged wrongful notice for repossession of a vehicle given by the Company. The Company has vide its letter dated April 30, 2004 informed the District Consumer Protection Forum that its mistake has been rectified and that the matter is now resolved. BN Mishra has filed a complaint before the District Consumer Redressal Forum at Lucknow for an amount aggregating approximately Rs. 0.34 million as compensation on account of the alleged failure of the Company to transfer RC book for a vehicle sold to the complainant in his favour. The Company had given a loan to its customer for the purchase of the vehicle and on his persistent default in the payment of instalments thereon, repossessed and sold it to the complainant. The Company has filed its say in the matter and it is pending disposal. Sanjay Kapoor has filed a complaint before the District Consumer Redressal Forum at Ambala for an amount aggregating approximately Rs. 0.10 million as compensation for the mental agony and harassment as well as costs on account of the alleged failure of the Company to issue a no objection certificate despite having no dues towards the company. The Company has filed its say in the matter and furnished the required NOC before the Consumer Forum. The matter has been referred to the Lok Adalat and hearing has been completed. Shayamapada Kar has filed the complaint before the District Consumer Redressal Forum at 24-Parganas for an amount aggregating approximately Rs. 0.20 million as compensation for the mental agony and harassment as well as costs on account of the alleged failure of the Company to issue a no objection certificate despite having no dues towards the company. The Company has filed its say in the matter and furnished the required NOC before the Consumer Forum. The matter is pending disposal. Further, there are approximately 122 consumer complaints filed against the Company in various fora for amounts aggregating approximately Rs. 4.03 million. These complaints are in various stages of pendency. In addition, there are approximately 54 consumer complaints filed against the Company in various fora where the financial impact cannot be quantified. These suits are in various stages of pendency. 135

2.

3.

4.

5.

6.

7.

8.

9. 10.

BAJAJ AUTO FINANCE LIMITED Others 1. There are approximately 18 claims filed before various Motor Accident Claims Tribunals against the Company under section 166 of the Motor Vehicles Act, 1988 for amounts aggregating approximately Rs. 10.95 million as compensation for death/injury caused in accidents involving vehicles financed by the Company. The Company has been made party to approximately 34 cases where the ownership of its shares is in dispute.

2.

Cases filed by the Company Civil suits 1. The Company has filed civil suit No. 3972 of 2000 before the Bombay High Court against Sundeep Polymers Pvt. Ltd. and another for an amount aggregating approximately Rs. 25.46 million and interest thereon being the amount allegedly payable to the company under two hire purchase agreements (dated April 23, 1994 and June 10, 1996) in respect of certain machinery entered into between the Company and Sundeep Polymers Pvt. Ltd. The Company also filed a notice of motion No. 2858 of 2000 praying for the appointment of a court receiver in respect of the suit machinery and certain immovable property charged as security for the claim amount. Amount of Rs. 3.05 million has been deposited with the court receiver by the defendant. The court receiver has taken formal possession of the suit flat and the suit machineries. The Company has filed civil suit No. 1814 of 1997 before the Delhi High Court for the recovery of an amount aggregating approximately Rs. 14.89 million being the lease rentals payable by Prakash Industries Limited in respect of certain equipment (wind mills) leased by the Company under a lease agreement dated March 28, 1995. The Company also sought return of the windmills. The Court passed an order dated May 17, 2001 handing over the possession of the wind mills to the Company. Further proceedings in the suit have been stayed as the matter is pending before the BIFR.

2.

Criminal cases 1. The Company has filed 6 criminal complaints in the court of the Chief Metropolitan Magistrate at New Delhi against Prakash Industries Limited and its director for offences punishable under section 138 of the Negotiable Instruments Act, 1881 in respect of an amount aggregating approximately Rs. 6.14 million due to it as the lease rentals for certain equipment (windmills) leased by it to Prakash Industries Limited. These complaints are pending disposal. The Company has filed a criminal complaint in the court of the Chief Metropolitan Magistrate at New Delhi against Nithsi Udyog Limited for offences punishable under section 138 of the Negotiable Instruments Act, 1881 in respect of an amount aggregating approximately Rs. 1.17 million due to discounting of purchase bills by it to Nithsi Udyog Limited. This complaint is pending disposal. The Company has filed 4 criminal complaints in the court of the Judicial Magistrate First Class at Pune against VVR Automobile Agency and another for offences punishable under section 138 of the Negotiable Instruments Act, 1881 in respect of an amount aggregating approximately Rs. 0.43 million due to it as the loan amounts and interest thereon owed by the customers of the Company and guaranteed by VVR Automobile Agency. These complaints are pending disposal. The Company has filed 44 criminal complaints in the court of the Judicial Magistrate First Class at Pune against Auto Ways (P) Limited and another for offences punishable under section 138 of the Negotiable Instruments Act, 1881 in respect of an amount aggregating approximately Rs. 2.30 million due to it as the loan amounts and interest thereon owed by the customers of the Company and guaranteed by Auto Ways (P) Limited. These complaints are pending disposal. Further, the Company has filed 39,229 criminal complaints before various courts against its customers for offences punishable under section 138 of the Negotiable Instruments Act, 1881 in respect of amounts aggregating approximately Rs. 481.13 million due to it as the loan amounts and interest thereon owed by the customers. These complaints are pending disposal. 136

2.

3.

4.

5.

BAJAJ AUTO FINANCE LIMITED Others 1. The Company has filed 3 cases against its employees before various courts for offences punishable under section 408 of the IPC for misappropriation of its funds. These cases are pending disposal.

Directors Except as described below, there is no outstanding litigation, disputes, overdues to banks/financial institutions, defaults against banks/financial institutions, proceedings initiated for any economic/civil/ any other offences, involving the Directors of our Company. I. Rahul Bajaj Shishir Bajaj, Minakshi Bajaj, Kushagra Bajaj and Apoorv Bajaj have filed a petition before the Company Law Board under sections 397, 398 and 402 of the Companies Act, 1956 inter alia against Rahul Bajaj. The petition is pending before the Company Law Board. II. Madhur Bajaj Shishir Bajaj, Minakshi Bajaj, Kushagra Bajaj and Apoorv Bajaj have filed a petition before the Company Law Board under sections 397, 398 and 402 of the Companies Act, 1956 inter alia against Madhur Bajaj. The petition is pending before the Company Law Board. III. Rajiv Bajaj Shishir Bajaj, Minakshi Bajaj, Kushagra Bajaj and Apoorv Bajaj have filed a petition before the Company Law Board under sections 397, 398 and 402 of the Companies Act, 1956 inter alia against Rajiv Bajaj. The petition is pending before the Company Law Board. IV. Sanjiv Bajaj Shishir Bajaj, Minakshi Bajaj, Kushagra Bajaj and Apoorv Bajaj have filed a petition before the Company Law Board under sections 397, 398 and 402 of the Companies Act, 1956 inter alia against Sanjiv Bajaj. The petition is pending before the Company Law Board. V . DS Mehta Shishir Bajaj, Minakshi Bajaj, Kushagra Bajaj and Apoorv Bajaj have filed a petition before the Company Law Board under sections 397, 398 and 402 of the Companies Act, 1956 inter alia against DS Mehta. The petition is pending before the Company Law Board. Promoters Except as described below, there are no contingent liabilities not provided for, outstanding litigation, disputes, non payment of statutory dues, overdues to banks/financial institutions, defaults against banks/financial institutions, defaults in dues towards instrument holders like debenture holders, fixed deposits and arrears on cumulative preference shares issued by the company, defaults in creation of full security as per terms of issue/other liabilities, proceedings initiated for any economic/civil/ any other offences, involving our Promoters.

137

BAJAJ AUTO FINANCE LIMITED I. Bajaj Auto Limited Contingent liabilities (Not provided for as of September 30, 2006)

Particulars Sales bills discounted Claims against the company not acknowledged as debts Guarantees given by the company to Housing Development Finance Corporation Ltd. for loans to Employees Excise and Customs demand matters under dispute and claims for refund of Excise Duty, if any, against Excise Duty Refund received in the earlier year Income-Tax matters under dispute Appeal by company Appeal by Department Sales Tax matters under dispute Claims (Estimated amounts) Claims made by temporary workmen pending before various courts in respect of similar matters adjudicated by the Supreme Court in the past. The matter is contingent on the facts and evidence presented before the courts / adjudicating authorities and not necessarily to be influenced by the Supreme Courts order. Total
Outstanding litigation as of September 30, 2006 Criminal case

(In Rs. Million) Amount 24.20 2,405.90 18.00 712.50 1,232.40 1,880.10 110.30

Liability unascertained 6,383.40

One customer of BAL, Deorao Vithoba Satpute, gardener of a vendor whose contract had been terminated by the company, filed a complaint No.4 of 2000 in the Court of the JMFC at Nagpur against 26 parties, comprising BAL (1), its directors (10) and officers (10) and a few dealers (2) and its directors (3) for offences of cheating as well as for offences under the Bombay Lotteries (Control and Tax) and Prize Competitions (Tax) Act, 1958 and the Bombay Prevention of Gambling Act, 1887 in respect of a sales promotion prize scheme floated by BAL. The JMFC passed an order dated 28 February 2000 issuing process against the said parties. The order was challenged by these parties firstly before the Bombay High Court, Nagpur bench for quashing of the proceedings, which was then directed to JMFC, Nagpur. After going back to Bombay High Court, Nagpur Bench, it was directed to the Sessions Court at Nagpur where two Revision Applications number 204/ 05 and 205/05 were filed by BAL. The Sessions Court has passed an order on 9th March 2006, vide which Criminal Revision Application 204/05 was completely allowed and the case against all the non-executive directors was quashed. The second Criminal Revision Application number 205/05 was partly allowed whereby the complaint was quashed against the other directors and officers. The complaint is now to be proceeded only against BAL, one of its former officer and the concerned dealers at Nagpur. Income Tax There are approximately 14 income tax related appeals filed by the income tax department for an amount aggregating approximately Rs. 1,880.10 million; There are approximately 7 income tax related appeals filed by BAL for an amount aggregating approximately Rs. 1,232.40 million. Excise & Customs There are approximately 441 excise related SCNs in respect of 107 different types of disputes for amounts aggregating approximately Rs. 625.20 million; There are approximately 268 customs related demand notices for amounts aggregating approximately Rs. 87.30 million. 138

BAJAJ AUTO FINANCE LIMITED Sales Tax There are approximately 19 sales tax related disputes for amounts aggregating approximately Rs. 110.30 million.

Property Tax There are approximately 20 property tax related disputes for amounts aggregating approximately Rs. 62.30 million.

Octroi There are approximately five octroi related disputes for amounts aggregating approximately Rs. 22.80 million.

Civil cases There are approximately 598 consumer disputes for amounts aggregating approximately Rs. 67.00 million; One dispute has been filed against BAL for an amount aggregating approximately 25,000 million Italian Lira approximately equivalent to Rs. 750.00 million as on September 30, 2006; There is one civil dispute involving BAL for an amount aggregating approximately Rs. 1,087 million; There is one civil dispute involving BAL for an amount aggregating approximately Rs. 300 million.

Litigation involving Labour Laws There are approximately 168 suits pertaining to temporary workmen the liability in respect of which cannot be quantified; There are approximately 51 suits pertaining to other labour matters for amounts aggregating approximately Rs. 56.10 million; There are two disputes in respect of employees state insurance contributions claimed by the authorities for an amount aggregating approximately Rs. 43.10 million.

Other cases II. There is one dispute in respect of electricity charges for an amount aggregating approximately Rs. 0.20 million; There are approximately nine disputes in respect of accidental claims for amounts aggregating approximately Rs. 4.60 million; In addition, there are two disputes for an amount aggregating approximately Rs. 12.70 million; Contingent liability in respect of bills discounted with Banks for an amount aggregating approximately Rs. 24.20 million; Guarantee given by company to Bank for loan to employees aggregating to approximately Rs. 18.00 million. Bajaj Auto Holdings Limited
(In Rs. Million) Amount 19.00 0.10 19.10

Contingent liabilities (Not provided for as of September 30, 2006)

Particulars Income tax matters under dispute Appeals by the Department Appeals by the Company Total

Outstanding litigation as of September 30, 2006 Income Tax Six appeals by the income tax department are pending in respect of an amount aggregating approximately 139

BAJAJ AUTO FINANCE LIMITED Rs. 19.00 million; One appeal by the Company is pending in respect of an amount aggregating approximately Rs. 0.10 million.

Cases involving our Promoter Group Except as described below, there are no contingent liabilities not provided for, outstanding litigation, disputes, non payment of statutory dues, overdues to banks/financial institutions, defaults against banks/financial institutions, defaults in dues towards instrument holders like debenture holders, fixed deposits and arrears on cumulative preference shares issued by the company, defaults in creation of full security as per terms of issue/other liabilities, proceedings initiated for any economic/civil/ any other offences, involving our Group Companies. I. Bajaj Allianz General Insurance Company Limited
(In Rs. Million) Amount 0.36 33.91

Contingent liabilities (Not provided for as of September 30, 2006)

Particulars Partly paid up investments Statutory demands/ liabilities in dispute, not provided for

Outstanding litigation as of September 30, 2006 Civil cases The Company, being an insurance company, has cases before various Courts in the usual course of business. These cases have been provided for in accordance with the Companys policies for claims reserving. Bajaj Allianz Life Insurance Company Limited
(In Rs. Million) Amount 5.14 18.85

II.

Contingent liabilities (Not provided for as of September 30, 2006)

Particulars Claims, other than those under policies, not acknowledged as debts Claims, under policies, not acknowledged as debts

Outstanding litigation as of September 30, 2006 Civil cases 80 consumer disputes against Bajaj Allianz Life Insurance Company Limited are pending in Consumer Forums and 20 cases against Bajaj Allianz Life Insurance Company Limited are pending before the Insurance Ombudsman with respect to an amount aggregating approximately Rs. 32.70 million.

Other Litigation pending in various fora Twelve disputes are pending before various fora in respect of an amount aggregating approximately Rs. 5.14 million.

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BAJAJ AUTO FINANCE LIMITED III. Bajaj Electricals Limited Contingent liabilities (Not provided for as of September 30, 2006)

(In Rs. Million) Particulars Disputed Income Tax Matters Disputed Excise Matters Gross Net of Tax Disputed Sales Tax Matters Gross Net of Tax Claims against the company not acknowledged as debts Gross Net of Tax Guarantees / Letter of Comfort given on behalf of other companies Penalty / damages / interest, if any, due to non-fulfilment of any of the terms of works contracts Uncalled Liability in respect of partly paid shares held as investment
Outstanding litigation as of September 30, 2006 Criminal cases 13 complaints filed by Bajaj Electricals Limited under section 138 of the Negotiable Instruments Act, 1881 are pending in respect of an amount aggregating approximately Rs. 6.79 million.

Amount 4.57 7.69 5.10 58.63 38.89 45.82 30.40 65.00 Not ascertainable 00.72

Civil cases IV. Seven disputes against Bajaj Electricals Limited are pending in respect of an amount aggregating approximately Rs. 24.44 million; Six cases filed by Bajaj Electricals Limited in respect of infringement of trade marks where the amount involved cannot be quantified; In addition, 15 disputes filed by Bajaj Electricals Limited are pending in respect of an amount aggregating approximately Rs. 10.89 million. Hercules Hoists Limited
(In Rs. Million) Amount 1.15 30.97 0.28 0.73

Contingent liabilities (Not provided for as of September 30, 2006)

Particulars Disputed Excise Duty Liability Counter guarantees given to bankers in respect of guarantees given by them Corporate Guarantees given by the Company Claims against the company not acknowledged as debts V . Jamnalal Sons Private Limited

Outstanding litigation as of September 30, 2006 Shishir Bajaj, Minakshi Bajaj, Kushagra Bajaj and Apoorv Bajaj have filed a petition before the Company Law Board under sections 397, 398 and 402 of the Companies Act, 1956 inter alia against Bajaj Sevashram Private Limited and others. Jamnalal Sons Private Limited has been added as a party respondent to the said petition. The petition is pending before the Company Law Board. 141

BAJAJ AUTO FINANCE LIMITED VI. Maharashtra Scooters Limited

(In Rs. Million) Amount 0.60 75.29 4.95 2.11 0.32

Contingent liabilities (Not provided for as of September 30, 2006)

Particulars Labour matter Income Tax Sales Tax Excise Duty Booking, Service & Marketing related matters

Outstanding litigation as of September 30, 2006 Income Tax 12 disputes are pending before various fora in respect of an amount aggregating approximately Rs. 75.29 million.

Sales Tax Two disputes are pending before various fora in respect of an amount aggregating approximately Rs. 4.95 million.

Excise 16 disputes are pending before various fora in respect of an amount aggregating approximately Rs. 2.11 million.

Civil cases 209 consumer disputes against Maharashtra Scooters Limited are pending before various fora in respect of an amount aggregating approximately Rs. 0.20 million; In addition, 12 disputes are pending before various fora in respect of an amount aggregating approximately Rs. 0.12 million.

VII. Mukand Limited Contingent liabilities (Not provided for as of September 30, 2006)
Particulars Disputed matters in appeal/contested in respect of Income tax Excise Duty, Customs Duty etc. Sales Tax, Works Contract Tax, etc. Other matters Claims against the company not acknowledged as debts Bills discounted with the bankers and others Sale Bills discounted Guarantees and Counter guarantees given by the company on behalf of: Other companies Bonds / undertakings given by the company under concessional duty / exemption to Customs / Excise Authorities Bonds given by the Company against import of machinery under EPCG Scheme (In Rs. Million) Amount 86.85 52.30 31.05 73.65 21.08 27.43 1,371.69 6.57 78.78

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BAJAJ AUTO FINANCE LIMITED Outstanding litigation as of September 30, 2006 Criminal cases Two cases are pending before various fora against Mukand Limited where the amount involved cannot be quantified; Eight complaints filed by Mukand Limited under section 138 of the Negotiable Instruments Act, 1881 are pending in respect of an amount aggregating approximately Rs. 45.69 million; One case filed by Mukand Limited in respect of unauthorised withholding of material is pending; the amount involved is approximately Rs. 1.07 million.

Civil cases Four cases are pending against Mukand Limited before various fora in respect of an amount aggregating approximately Rs. 17.87 million; One case filed by Mukand Limited is pending before the High Court at Kuala Lumpur in respect of an amount aggregating approximately USD 0.34 million; Six cases filed by Mukand Limited are pending before various fora in respect of an amount aggregating approximately Rs. 39.76 million; One consumer dispute filed by Mukand Limited is pending before the National Consumer Disputes Redressal Commission in respect of an amount aggregating approximately Rs. 3.79 million; Five winding up petitions filed by Mukand Limited are pending before various fora in respect of an amount aggregating approximately Rs. 56.60 million; In addition, two cases filed by Mukand Limited are pending before various fora where the amount involved cannot be quantified.

Arbitration Proceedings Four proceedings initiated against Mukand Limited are pending in respect of an amount aggregating approximately Rs. 1,070.40 million; One proceeding initiated by Mukand Limited is pending in respect of an amount aggregating approximately USD 0.90 million; In addition, two arbitration proceedings initiated by Mukand Limited are pending in respect of an amount aggregating approximately Rs. 84.80 million.

Litigation involving labour laws 18 disputes are pending before various fora where the amount involved cannot be quantified.

VIII. Monotona Tyres Limited Contingent liabilities (Not provided for as of September 30, 2006)
Particulars Letter of credit (In Rs. Million) Amount 33.58

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BAJAJ AUTO FINANCE LIMITED

GOVERNMENT APPROVALS
In view of the approvals listed below, we can undertake this Issue and our current business activities and no further material approvals are required from any Government authority or the RBI to continue such activities. We have received the following Government approvals that are material to our business: Approvals for the Issue 1. Letter dated June 8, 2006 issued by the RBI to the Company permitting it to issue 5,248,365 NCDs on a rights basis to the existing shareholders of the Company, subject to the certain conditions specified therein.

Approvals for our Business General 1. RBI 1. Certificate of Registration No. 13.00243 dated March 5, 1998 issued by the RBI under section 45IA of the RBI Act, 1934 granting registration to carry on the business of a non banking financial institution as a deposit taking company. PAN: AAABCB1518L

Service Tax 1. Service Tax Registration Certificate No. AABCB1518L-ST-001 dated September 30, 2004 issued by the Superintendent, Service Tax, Pune in respect of Insurance Auxiliary Service and Banking and other Financial Services (1071380658).

Employment related approvals 1. Order dated May 10, 1966 issued by the Commissioner of Income Tax, Mumbai under rule 3(1) of Part A of the Fourth Schedule to the Income Tax Act, 1961 according recognition to the Bajaj Auto Limited Provident Fund. The employees of the Company are covered by the Bajaj Auto Limited Provident Fund. Order dated May 20, 1987 issued by the Commissioner of Income Tax, Mumbai under rule 2(1) of Part B of the Fourth Schedule to the Income Tax Act, 1961 according recognition to the Bajaj Auto Limited Employees Superannuation Scheme. The employees of the Company are covered by the Bajaj Auto Limited Employees Superannuation Scheme. Letter No. C/J.27-557/88-89 dated May 12, 1989 from the Commissioner of Income Tax, Bombay, conveying approval to the Sixth Deed of Variation to the Bajaj Auto Employees Group Gratuity Scheme extending the coverage of the employees of the Company in the scheme. Letter No. C/J.27-557/88-89 dated May 12, 1989 from the Commissioner of Income Tax, Bombay, conveying approval to the Sixth Deed of Variation to the Bajaj Auto Employees Group Gratuity Scheme extending the coverage of the employees of the Company in the this scheme. The branches of the Company are registered under the provisions of the Employees State Insurance Corporation Act as applicable. The branches of the Company are registered under the provisions of the various Shops and Establishments Acts, as applicable.

2.

3.

4.

5. 6.

Others 1. Certificate of Enrolment No. PT/E/2/2/7/1C/481 dated September 25, 1987 under section 5 of the Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975.

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BAJAJ AUTO FINANCE LIMITED

STATUTORY AND OTHER INFORMATION

Authority for the Issue Pursuant to the resolution passed by the Board of Directors of the Company at its meeting held on December 10, 2005, January 12, 2006 and July 14, 2006 and the resolution passed by the Preferential/ Rights Issue Committee of Directors at its meeting held on November 2, 2006, it has been decided to make the following offer to the Equity Shareholders of the Company with a right to renounce. The present issue is also being made pursuant to the resolution passed by the shareholders of the Company at the Extraordinary General Meeting held on January 12, 2006. The RBI has, vide its letter dated June 8, 2006, permitted the Company to issue 5,248,365 NCDs on a rights basis to the existing shareholders of the Company, subject to the certain conditions specified therein. Prohibition by SEBI Neither we, nor our Directors or the Promoter Group Companies, or companies with which our Directors are associated with as directors or promoters, have been prohibited from accessing or operating in the capital markets under any order or direction passed by SEBI. Eligibility for the Issue Bajaj Auto Finance Limited is an existing company registered under the Indian Companies Act, 1956 whos Equity Shares are listed on BSE and NSE. It is eligible to offer this Issue in terms of Clause 2.4.1(iv) of the SEBI DIP Guidelines. The Company, its Promoter, its Directors or any of the Companys associates or group companies are currently not prohibited from accessing the capital market under any order or direction passed by SEBI. Further the Promoter, their relatives (as per Companies Act, 1956), the Company, group companies, associate companies are not detained as wilful defaulters by RBI / Government authorities. Disclaimer Clause AS REQUIRED, A COPY OF THE DRAFT LETTER OF OFFER HAS BEEN SUBMITTED TO THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI). IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THE DRAFT LETTER OF OFFER TO SEBI SHOULD NOT, IN ANY WAY BE DEEMED/ CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPOSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH THE ISSUE IS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THE DRAFT LETTER OF OFFER. THE LEAD MANAGER JM MORGAN STANLEY PRIVATE LIMITED HAVE CERTIFIED THAT THE DISCLOSURES MADE IN THE DRAFT LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI GUIDELINES FOR DISCLOSURE AND INVESTOR PROTECTION IN FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE. IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE ISSUER COMPANY IS PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE DRAFT LETTER OF OFFER, THE LEAD MANAGER ARE EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE COMPANY DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE THE LEAD MANAGER JM MORGAN STANLEY PRIVATE LIMITED HAVE FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATED AUGUST 21, 2006 WHICH READS AS FOLLOWS: 1. WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO LITIGATION LIKE COMMERCIAL DISPUTES, DISPUTES WITH COLLABORATORS, ETC. AND OTHER MATERIALS MORE PARTICULARLY REFERRED TO IN THE ANNEXURE HERETO IN CONNECTION WITH THE FINALISATION OF THE DRAFT LETTER OF OFFER PERTAINING TO THE SAID ISSUE;

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BAJAJ AUTO FINANCE LIMITED 2. ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE COMPANY, ITS DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE, PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS MENTIONED IN THE ANNEXURE AND OTHER PAPERS FURNISHED BY THE COMPANY;

WE CONFIRM THAT: THE DRAFT LETTER OF OFFER FORWARDED TO SEBI IS IN CONFORMITY WITH THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE ISSUE; ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO THE GUIDELINES, INSTRUCTIONS ETC., ISSUED BY SEBI, THE GOVERNMENT AND ANY OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY COMPLIED WITH; THE DISCLOSURES MADE IN THE DRAFT LETTER OF OFFER ARE TRUE, FAIR AND ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL-INFORMED DECISION AS TO INVESTMENT IN THE PROPOSED ISSUE; 3. WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE DRAFT LETTER OF OFFER ARE REGISTERED WITH SEBI AND TILL DATE SUCH REGISTRATION IS VALID; AND IF UNDERWRITTEN, WE SHALL SATISFY OURSELVES ABOUT THE WORTH OF THE UNDERWRITERS TO FULFIL THEIR UNDERWRITING COMMITMENTS NOT APPLICABLE WE CERTIFY THAT WRITTEN CONSENT FROM SHAREHOLDERS HAS BEEN OBTAINED FOR INCLUSION OF THEIR SECURITIES AS PART OF PROMOTERS CONTRIBUTION SUBJECT TO LOCK-IN AND THE SECURITIES PROPOSED TO FORM PART OF PROMOTERS CONTRIBUTION SUBJECT TO LOCK-IN, WILL NOT BE DISPOSED/ SOLD/ TRANSFERRED BY THE PROMOTERS DURING THE PERIOD STARTING FROM THE DATE OF FILING THE DRAFT LETTER OF OFFER WITH THE BOARD TILL THE DATE OF COMMENCEMENT OF LOCK-IN PERIOD AS STATED IN THE DRAFT LETTER OF OFFER NOT APPLICABLE

4. 5.

The filing of the Draft Letter of Offer does not, however, absolve the Company from any liabilities under Section 63 or Section 68 of the Companies Act, 1956 or from the requirement of obtaining such statutory or other clearance as may be required for the purpose of the proposed Issue. SEBI further reserves the right to take up, at any point of time, with the Lead Manager any irregularities or lapses in the Draft Letter of Offer. Caution The Company and the Lead Manager accept no responsibility for statements made otherwise than in this Letter of Offer or in any advertisement or other material issued by the Company or by any other persons at the instance of the Company and anyone placing reliance on any other source of information would be doing so at his own risk. The Lead Manager and the Company shall make all information available to the Equity Shareholders and no selective or additional information would be available for a section of the Equity Shareholders in any manner whatsoever including at presentations, in research or sales reports etc. after filing of this Letter of Offer with SEBI. Disclaimer with respect to jurisdiction This Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and regulations thereunder. Any disputes arising out of this Issue will be subject to the jurisdiction of the appropriate court(s) in Mumbai, India only. No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for that purpose, except that this Letter of Offer has been filed with SEBI for observations and SEBI has given 146

BAJAJ AUTO FINANCE LIMITED its observations. Accordingly, the equity shares represented thereby may not be offered or sold, directly or indirectly, and this Letter of Offer may not be distributed in any jurisdiction, except in accordance with the legal requirements applicable in such jurisdiction. Neither the delivery of this Letter of Offer nor any sale hereunder, shall under any circumstances create any implication that there has been no change in our affairs from the date hereof or that the information contained herein is correct as of any time subsequent to this date. The Draft Letter of Offer has been filed with SEBI, Mittal Court, A Wing, Nariman Point, Mumbai 400021, for its observations. After incorporating SEBI observations, to the extent applicable the final Letter of Offer is filed with the Designated Stock Exchange as per the provisions of the Act. Disclaimer Clause of the BSE The Bombay Stock Exchange Limited (the Exchange) has given vide its letter dated August 24, 2006, permission to this Company to use the Exchanges name in this Letter of Offer as one of the Stock Exchanges on which this Companys securities are proposed to be listed. The Exchange has scrutinized this Letter of Offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Company. The Exchange does not in any manner: (i) (ii) warrant, certify or endorse the correctness or completeness of any of the contents of this Letter of Offer; or warrant that this Companys securities will be listed or will continue to be listed on the Exchange; or

(iii) take any responsibility for the financial or other soundness of this Company, its Promoters, its management or any scheme or project of this Company; and it should not for any reason be deemed or construed that the Letter of Offer has been cleared or approved by the Exchange. Every person who desires to apply for or otherwise acquires any securities of this Company may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever. Disclaimer Clause of the NSE As required, a copy of this Letter of Offer has been submitted to National Stock Exchange of India Limited (hereinafter referred to as NSE). NSE has given vide its letter dated August 31, 2006 permission to the Issuer to use the Exchanges name in this Letter of Offer as one of the Stock Exchanges on which this Issuers securities are proposed to be listed. The Exchange has scrutinized this Letter of Offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to the Issuer. It is to be distinctly understood that the aforesaid permission given by NSE should not in any way be deemed or construed that the Letter of Offer has been cleared or approved by NSE; nor does it in any manner warrant, certify or endorse the correctness or completeness of any of the contents of this Letter of Offer; nor does it warrant that the Issuers securities will be listed or will continue to be listed on the Exchange; nor does it take any responsibility for the financial or other soundness of this Issuer, its Promoters, its management or any scheme or project of this Issuer. Every person who desires to apply for or otherwise acquire any securities of the Issuer may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or any other reason whatsoever. Filing The Draft Letter of Offer was filed with SEBI, Mittal Court, Nariman Point, Mumbai 400 021. All the legal requirements applicable till the date of filing the Letter of Offer with the Stock Exchanges have been complied 147

BAJAJ AUTO FINANCE LIMITED with. A copy of the Letter of Offer, required to be filed under SEBI DIP Guidelines would be filed with the BSE and NSE. Listing The existing Equity Shares are listed on the BSE and NSE. The Company has made applications to the BSE and NSE for permission to deal in and for an official quotation in respect of the Equity Shares, NCDs and warrants being offered in terms of this Letter of Offer. The Company has received in-principle approvals from BSE and NSE by letters dated August 24, 2006 and August 31, 2006, respectively. The Company will apply to the BSE and NSE for listing of the Equity Shares, NCDs and warrants to be issued pursuant to this Issue. If the permission to deal in and for an official quotation of the securities is not granted by any of the Stock Exchanges mentioned above, within 42 days from the Issue Closing Date, the Company shall forthwith repay, without interest, all monies received from applicants in pursuance of this Letter of Offer. If such money is not paid within eight days after the Company becomes liable to repay it, then the Company and every Director of the Company who is an officer in default shall, on and from expiry of eight days, be jointly and severally liable to repay the money with interest as prescribed under the Section 73 of the Act. Consents Consents in writing of the Auditors, Lead Manager, Legal Advisors, Registrar to the Issue and Banker to the Issue, Debenture Trustee and Monitoring Agency to act in their respective capacities have been obtained and filed with SEBI, along with a copy of the Draft Letter of Offer and such consents have not been withdrawn up to the time of delivery of this Letter of Offer for registration with the stock exchanges. The Auditors of the Company have given their written consent for the inclusion of their Report in the form and content as appearing in this Letter of Offer and such consents and reports have not been withdrawn up to the time of delivery of this Letter of Offer for registration with the stock exchanges. S.V. Ghatalia & Associates have given their written consent for inclusion of income tax benefits in the form and content as appearing in this Letter of Offer, accruing to the Company and its members. To the best of our knowledge there are no other consents required for making this Issue. However, should the need arise, necessary consents shall be obtained by us. Expert Opinion, if any No expert opinion has been obtained by the Company. Expenses of the Issue The expenses of the Issue payable by the Company including brokerage, fees and reimbursement to the Lead Manager, Registrar, Auditors, legal counsels, printing and distribution expenses, publicity, listing fees, stamp duty and other expenses are estimated to be approximately Rs. 35 million (around 0.52% of the total Issue size without considering warrants conversion) and will be met out of the proceeds of the Issue. Fees Payable to the Lead Manager to the Issue The total fees payable to JMMS, the Lead Manager, will be Rs. 11.5 million which constitutes 0.17% of the total issue expenses and 0.27% of the Issue size (without considering warrants conversion). In addition, we would reimburse all actual out of pocket expenses and services tax and such other similar levies. Fees Payable to the Registrars to the Issue A fee of Rs. 175,000 for printing of rights register and overprinting CAF, processing applications and for over printing of allotment advice and refund order. The fee payable to the Registrars to the Issue is as set out in the relevant documents, copies of which are kept open for inspection at the Registered Office of the Company.

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BAJAJ AUTO FINANCE LIMITED In addition to the above, we will reimburse actual out of pocket expenses. As the fees payable to the Registrar would vary upon the number of applications received, hence total fees payable to Registrar as a percentage of the total issue expenses and as a percentage of the Issue size cannot be disclosed. Adequate funds will be provided to the Registrar to enable them to send refund orders or allotment advice by registered post/ speed post. Fees Payable to the Bankers to the Issue No fee is payable to the Bankers to the Issue Fees Payable to the Trustees for the debenture holders to the Issue The total fees payable to IL&FS Trust Company Limited as Debenture Trustee is a one time acceptance fees of Rs. 100,000 and an annual fees of Rs. 100,000 payable semi-annually in advance plus service tax and reimbursement of our of pocket expenses. Previous Issues by the Company The Company has not undertaken any previous public or rights issue during the last five years. Date of listing on the Stock Exchange The Equity Shares of our Company were first listed on June 7, 1994 on the BSE. Thereafter, the Equity Shares were listed on the NSE. Capital Structure Issues for consideration other than cash The Company has not issued Equity Shares for consideration other than cash or out of revaluation reserves within the two years preceding the date of this Letter of Offer. Preference Shares No preference shares have been issued by the Company. Option to Subscribe Save as described on page 5 of this Letter of Offer, the Company has not given any person any option to subscribe to the shares of the Company. Stock market data for equity shares of the Company Please refer to page 107 of the Letter of Offer for further information pertaining to stock market data for the equity shares of the Company. Impersonation As a matter of abundant caution, attention of the applicants is specifically drawn to the provisions of sub section (1) of Section 68A of the Companies Act, 1956 which is reproduced below: Any person who makes in a fictitious name an application to a company for acquiring, or subscribing for, any shares therein, or otherwise induces a company to allot, or register any transfer of shares therein to him, or any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years. Government Approvals Our Company was incorporated on March 25, 1987 under the Indian Companies Act, 1956. We have obtained all necessary approvals to undertake our activities and we do not propose to enter into any new activities through this Issue, for which further approvals may be required to be obtained, except as may be required to be obtained in the normal course of our business and for intended use of Objects of the Issue. For further details, please refer to the section on Government Approvals on page 144 of this Letter of Offer.

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BAJAJ AUTO FINANCE LIMITED Important This Issue has been authorized by the Board at their meetings held on December 10, 2005, January 12, 2006 and July 14, 2006 and the resolution passed by the Preferential/ Rights Issue Committee of Directors at its meeting held on November 2, 2006. The present Issue is also being made pursuant to the resolution passed by the shareholders of the Company at the Extraordinary General Meeting held on January 12, 2006. This Issue is applicable to those Equity Shareholders whose names appear as beneficial owners as per the list to be furnished by the depositories in respect of the shares held in the electronic form and on the Register of Members of the Company at the close of business hours on the Record Date i.e. November 20, 2006. Your attention is drawn to the section entitled Risk Factors appearing on page vii of this Letter of Offer. Please ensure that you have received the Composite Application Form (CAF) with this Letter of Offer. Please read the Letter of Offer and the instructions contained herein and in the CAF carefully before filling in the CAF. The instructions contained in the CAF are an integral part of this Letter of Offer and must be carefully followed. An application is liable to be rejected for any non-compliance of the provisions contained in the Letter of Offer or the CAF. All enquiries in connection with this Letter of Offer or CAF should be addressed to the Registrar to the Issue, quoting the Registered Folio number/ DP and Client ID number and the CAF numbers as mentioned in the CAF. All information shall be made available to the Investors by the Lead Manager and the Issuer, and no selective or additional information would be available by them for any section of the Investors in any manner whatsoever including at road shows, presentations, in research or sales reports, etc. The Lead Manager and the Company shall update this Letter of Offer and keep the public informed of any material changes till the listing and trading commences.
December 15, 2006 January 1, 2006 January 15, 2007

Issue Schedule Issue Opening Date

Last date for receiving requests for split forms Issue Closing Date

Allotment Letters / Refund Orders The Company will issue and dispatch letters of allotment/ share certificates/NCD certificates/ demat credit or letters of regret along with refund order exceeding Rs. 1,500/- or credit the allotted securities to the respective beneficiary accounts, if any within a period of 42 days from the date of closure of the Issue. If such money is not repaid within eight days from the day the Company becomes liable to pay it, the Company shall pay that money with interest as stipulated under Section 73 of the Act. Applicants residing at 15 centres where clearing houses are managed by the RBI, will get refunds through ECS only except where applicant is otherwise disclosed as eligible to get refunds through direct credit & RTGS. Applicants to whom refunds are made through electronic transfer of funds will be sent a letter through ordinary post intimating them about the mode of credit of refund within 42 days from the date of closing of the subscription list. Refund orders upto Rs. 1,500 shall be sent to the applicants under certificate of posting. Such cheques or pay orders will be payable at par at all the centres where the applications were originally accepted and will be marked A/c payee and would be drawn in the name of the sole/ first applicant. Adequate funds would be made available to the Registrar to the Issue for dispatch of the letters of allotment/ share certificates/ demat credit/ refund orders. In case the Company issues letters of allotment, the corresponding share certificates will be kept ready within three months from the date of allotment thereof or such extended time as may be approved by the Companies 150

BAJAJ AUTO FINANCE LIMITED Law Board under Section 113 of the Companies Act, 1956 or other applicable provisions, if any. Allottees are requested to preserve such Letters of Allotment, which would be exchanged later for the share certificates. Monitoring Agent The Company has appointed SICOM Limited vide letter dated January 11, 2006 as the monitoring agency to monitor the use of such proceeds and undertake periodic reporting as required by the SEBI Guidelines. Promise v. Performance We made a public issue of 4,175,000 equity shares of the face value Rs. 10 each per equity share for cash at a premium of Rs. 80 per share aggregating Rs. 375,750,000. The details of which are as hereunder: Issue opened on: Issue closed on: March 25, 1994 March 29, 1994

The main objects of the said issue were as hereunder:

Objects To part finance the the proposed expansion programme

To strengthen the net worth of the Company which in turn will increase the debt raising capacity of the Company To list the equity shares on the stock exchanges To meet the expenses of the issue
Actual performance achieved

Cost Disbursement increased from Rs. 790 million for the fiscal 1994 to Rs. 1765 million in fiscal 1995. Stock on hire and Receivables increased from Rs. 1055 million as on 31st March 1994 to Rs. 1308 million as on March 31, 1995. Net worth increased to Rs. 891.54 million as on March 31, 1995 as against Rs. 197.93 million as on March 31, 1994. Loan funds have been increased to Rs. 698.39 million as on 31st March 1995 from Rs. 484.89 million as on 31st March 1994. Listed on BSE, NSE, Pune and Ahmedabad Rs. 25.64 million
Rs. in million

Year ending 31st March Income Hire purchase finance business Leasing business Other Income Investment Income Total Profit Before interest and depreciation (PBID) Profit Before depreciation Profit Before Tax Profit After Tax Equity Reserves Book Value (Rs) EPS (Rs)

1994-95 Projected 231.00 71.30 135.50 24.50 462.40 398.10 248.10 196.50 191.10 167.00 806.50 58.30 11.44

1994-95 Actuals 200.69 57.46 67.52 42.17 367.84 293.22 210.69 164.95 166.15 164.88 726.65 54.06 10.08

1995-96 Projected 281.00 144.70 193.00 24.50 643.10 563.60 339.90 234.30 218.80 167.00 991.90 69.40 13.10

1995-96 Actuals 224.17 148.09 67.32 33.64 473.22 379.36 275.47 185.60 180.05 164.91 873.78 62.98 10.92

1996-97 Projected 338.20 239.50 253.00 24.50 855.20 762.90 477.00 299.10 269.40 167.00 1227.90 83.50 16.13

1996-97 Actuals 286.83 144.70 82.30 25.14 538.97 430.47 328.36 222.54 112.50 164.91 953.29 67.81 6.82

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BAJAJ AUTO FINANCE LIMITED Due to unviable return and non availability of quality new assets, the actual leasing business done in the financial year 1996-97 was substantially lower than the projected level of business resulting in lower income, PBT and PAT as compared to the projections. Other income comprises of income on account of Bill Discounting and income from real estate apart from other income. The business of Bill Discounting was restricted to the acceptance of bills by Bajaj Auto Limited and Maharashtra Scooters Limited. The Company has undertaken only one real estate project of development of residential property. The activity was not pursued further since it was not core line of business. Stock Market Data Please refer to section Stock Market Data for Equity Shares of our Company on page 107 of this Letter of Offer. Investor Grievances and Redressal System The Company has adequate arrangements for redressal of Investor complaints. Well-arranged correspondence system developed for letters of routine nature. The share transfer and dematerialization for the Company is being handled by the Company in-house at its registered office. Letters are filed category wise after having attended to. Redressal norm for response time for all correspondence including shareholders complaints is 7 days. However, the Company endeavours to redress all the complaints within 4 days of the receipt of complaint. A Shareholders/Investors Grievances Committee was constituted on March 5, 2001.The Committee consists of three non-executive directors Ranjan Sanghi, Naresh Patni and DS Mehta. Ranjan Sanghi is the Chairperson of the Committee. The role of the Committee is to investor grievances. Suhas Patwardhan, Company Secretary, is the compliance officer of the Company. Meeting of Shareholders/Investors Committee is scheduled once a year. There were no complaints pending redressal as on March 31, 2006. During the period from April 1, 2005 to March 31, 2006 31 complaints were received. All 31 complaints were resolved to the satisfaction of the shareholders. Status of Complaints Total number of complaints received and resolved during the last financial year (2005-06): 31 Total number of complaints received and resolved during the current financial year (2006-07): 13 (as of September 30, 2006) Status of the complaints: Resolved Time normally taken by it for disposal of various types of Investor grievances: 7 days Investor Grievances arising out of this Issue The Companys investor grievances arising out of the Issue will be handled by Intime Spectrum Registry Limited, Registrars to the Issue. The Registrars will have a separate team of personnel handling only our post Issue correspondence. Investor grievances are settled expeditiously and satisfactorily by us. The agreement between us and the Registrars will provide for retention of records with the Registrars for a period of at least one year from the last date of dispatch of Letter of Allotment/ share certificate /NCD certificates/ warrant/ refund order to enable the Registrars to redress grievances of Investors. All grievances relating to the Issue may be addressed to the Registrars to the Issue giving full details such as folio no., name and address of the first applicant, number and type of shares applied for, Application Form serial number, amount paid on application and the name of the bank and the branch where the application was deposited, along with a photocopy of the acknowledgement slip. In case of renunciation, the same details of the renouncee should be furnished.

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BAJAJ AUTO FINANCE LIMITED The average time taken by the Registrar for attending to routine grievances will be 30 days from the date of receipt. In case of non-routine grievances where verification at other agencies is involved, it would be the endeavour of the Registrars to attend to them as expeditiously as possible. We undertake to resolve the Investor grievances in a time bound manner. Investors may contact the Compliance Officer in case of any pre-Issue/ post-Issue related problems such as non-receipt of letters of allotment/share certificates/demat credit/refund orders etc. Changes in Auditors during the last three years There have been no changes in our Statutory Auditors over the last three years. Capitalisation of Reserves or Profits The Company has not capitalized any of its reserves or profits for the last five years. Revaluation of Fixed Assets There has been no revaluation of the Companys fixed assets for the last five years. Minimum Subscription If the Company does not receive minimum subscription of 90% of the Issue (separately for Equity Shares and NCDs with detachable warrants) on the date of closure of the Issue or the subscription level falls below 90% after the closure of the Issue on account of cheques having being returned unpaid or withdrawal of applications, the Company shall forthwith refund the entire subscription amount received. If there is a delay beyond eight days after the date from which the Company becomes liable to pay the amount, the Company shall pay interest as prescribed under Section 73 of the Companies Act, 1956.

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BAJAJ AUTO FINANCE LIMITED

SECTION VII : ISSUE RELATED INFORMATION TERMS OF THE ISSUE

The Equity Shares and the Non-Convertible Debentures (NCDs) with detachable Warrants now being issued, are subject to the terms and conditions contained in this Letter of Offer, the enclosed Composite Application Form (CAF), the terms and conditions as may be incorporated in the Debenture Trust Deed, FEMA, the Memorandum and Articles of Association of the Company, approvals from the RBI, the provisions of the Companies Act, 1956, guidelines issued by SEBI, guidelines, notifications and regulations for issue of capital and for listing of securities issued by Government of India and/or other statutory authorities and bodies from time to time, terms and conditions as stipulated in the allotment advice or letter of allotment or security certificate and rules as may be applicable and introduced from time to time. Authority for the Issue This Issue has been authorized by the Board at their meetings held on December 10, 2005, January 12, 2006 and July 14, 2006 and the resolution passed by the Preferential/ Rights Issue Committee of Directors at its meeting held on November 2, 2006. The present issue is also being made pursuant to the resolution passedby the shareholders of the Company at the Extraordinary General Meeting held on January 12, 2006. The RBI has, vide its letter dated June 8, 2006, permitted the Company to issue 5,248,365 NCDs on a rights basis to the existing shareholders of the Company, subject to the certain conditions specified therein. Basis of Offer The Equity Shares and NCDs with detachable Warrants are being offered for subscription for cash to those existing Equity Shareholders whose names appear as beneficial owners as per the list to be furnished by the Depositories in respect of the Equity Shares held in the Electronic Form and on the Register of Members of the Company in respect of the Equity Shares held in physical form at the close of business hours on November 20, 2006 (the Record Date), fixed in consultation with the Designated Stock Exchanges. Rights Entitlement As your name appears as beneficial owner in respect of the Equity Shares held in the Electronic Form or appears in the Register of Members as an Equity Shareholder on the Record Date, you are entitled to the number of Equity Shares and NCDs with detachable Warrants shown in Block I of Part A of the enclosed CAF. The eligible Equity Shareholders are entitled to the following: Six (6) Equity Shares for every ten (10) Equity Shares held on the Record Date; and One (1) NCD for every four (4) Equity Shares held on the Record Date. For every NCD being allotted on a rights basis under this Issue, the Equity Shareholder shall be entitled to receive one detachable Warrant.

Principal Terms of the Issue The Equity Shares and NCDs now being offered are subject to the provisions of the Act and the terms and conditions of this Letter of Offer, the CAF, the terms and conditions as may be incorporated in the Debenture Trust Deed, the Memorandum and Articles of Association, FEMA and the Letters of Allotment/Equity Shares/ NCDs/Warrant Certificates to be issued. Over and above such terms and conditions, the Equity Shares, the NCDs and the detachable Warrants shall also be subject to applicable laws, guidelines, notifications and regulations relating to the issue of capital and listing of securities issued from time by SEBI, the Government of India, RBI and / or other authorities.

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BAJAJ AUTO FINANCE LIMITED EQUITY SHARES Face Value Each Equity Share shall have a face value of Rs. 10. Issue Price Each Equity Share shall be offered at an Issue Price of Rs. 325 for cash including premium of Rs. 315 per Equity Share. Entitlement Ratio The Equity Shares are being offered on rights basis to the existing Equity Shareholders of the Company in the ratio of six (6) Equity Shares for every ten (10) Equity Shares held on the Record Date. Fractional Entitlement For Equity Shares being offered on a rights basis under this Issue, if the shareholding of any of the Equity Shareholders is less than ten (10) or is not in multiples of ten (10), then such shareholders would be given preferential allotment of one additional share each if they apply for additional shares. The Equity Shares needed for the above shall be adjusted from, the promoter groups entitlement at the time of allotment if required. Terms of Payment Full amount of Rs. 325 is payable on application. The payment towards the Equity Shares offered will be as under: Towards Share Capital Towards Share Premium Account Rs. 10 per share Rs. 315 per share

Where an applicant has applied for additional shares and is allotted lesser number of shares than applied for, the excess application money shall be refunded. The monies would be refunded within 42 days from the closure of the Issue, and if there is a delay beyond 8 days from the stipulated period, the Company will pay interest on the monies in terms of Section 73 of the Companies Act, 1956. NON-CONVERTIBLE DEBENTURES Face Value Each NCD shall have a Face Value of Rs. 500. Entitlement Ratio The NCDs are being offered on rights basis to the existing Equity Shareholders of the Company in the ratio of one (1) NCD for every four (4) Equity Shares held on the Record Date. Fractional Entitlement For NCD being offered on rights basis under this issue, if the shareholding of any of the Equity Shareholders is less than four (4) or is not in multiples of four (4), then such shareholders would be given preferential allotment of one additional NCD with detachable warrant each if they apply for additional NCD with warrants. The NCD with detachable warrant needed for the above shall be adjusted from, the promoter groups entitlement at the time of allotment if required.

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BAJAJ AUTO FINANCE LIMITED SEBI vide its Circular No. IMD/FII/20/2006 dated April 5, 2006, has stated that Government of India and Reserve Bank of India have clarified that FII investments are restricted to only listed debt securities of companies. Accordingly, FIIs are not eligible to subscribe to the NCDs with detachable warrants issued vide this Letter of Offer. FIIs are however permitted to renounce their entitlements of NCDs with detachable warrants to other investors subject to compliance with applicable law. Terms of Payment On application : On allotment : Rs. 125 per NCD Rs. 375 per NCD

The balance amount of Rs. 375 per NCD will be payable on allotment. An allotment cum call notice would be sent to all NCD holders specifying the procedure for payment of call money and the last date for payment of the same (at the designated branches to be announced). Subsequent to this the Company would have a corporate action for appropriation of Balance Amount Payable and for credit of fully paid NCDs to the demat accounts of NCD holders who have paid the amount due on allotment. Failure to pay the amount due on allotment on the date specified for the payment will render the NCD holder liable to pay interest at the rate of 12% per annum from the date so specified to the date of the realisation of the cheque/demand and also render the NCD (including the amount already paid in respect of these NCD) liable to forfeiture by resolution of the Board of Directors to that effect. The provision regarding the forfeiture of shares as contained in the Articles of Association of the Company shall apply mutatis mutandis to the forfeiture of these NCDs. Any excess payment made on application, i.e. more than Rs. 125 per NCD will be refunded back to the applicant. Further, NCDs issued cannot be traded after the date of allotment until the Balance Amount Payable is received and corporate action for appropriation of the amounts received is taken and the NCDs are made fully paid-up. Redemption Each NCD shall be redeemed at the end of 3 years from the Date of Allotment at the face value of Rs. 500. Interest Interest would be paid at the rate of 6% p.a. on the amount outstanding from time to time from the Date of Allotment of each NCD. Interest payments would be made at the end of each year from the date of allotment and the last payment would be made on final redemption. If such date falls on a Sunday or a public holiday in Mumbai notified in terms of the Negotiable Instruments Act, 1881, then interest would be paid on the next working day. Payment of interest would be subject to the deduction of Income-tax Act, 1961 or any statutory modification or re-enactment thereof for the time being in force. As per the current provisions of the Income-tax Act, 1961, tax will not be deducted at source from interest on NCD (in case of resident individual NCD holders), if such interest does not exceed Rs.2,500, respectively in any financial year. If interest exceeds the prescribed limit of Rs.2,500 on account of interest on NCD, then, to ensure non-deduction or lower deduction of tax at source, as the case may be, the NCD holder should furnish either (a) a declaration (in duplicate) in the prescribed form i.e. (i) Form 15H which can be given by individuals who are of the age of 65 years or more (ii) Form 15G which can be given by all applicants (other than companies, firms and NR), or (b) a certificate, from the Assessing Officer which can be obtained by all applicants (including companies and firms) by making an application in the prescribed form i.e. Form 13. The aforesaid documents, as may be applicable, should be submitted to Company quoting the name of the sole/ first NCD holder, NCD folio number and the distinctive number(s) of the NCD held, at least one month prior to the interest payment date, to ensure non-deduction/lower deduction of tax at source from interest on NCD. The investors need to submit Form 15H/15G/ certified true copy of Certificate from Assessing Officer for each financial year to ensure non-deduction or lower deduction of tax at source from interest on NCD. NRIs/ OCBs applying on repatriation basis who desire that the interest be paid without deduction of tax at source or at lower rate should submit a certified true copy of Certificate issued by their Assessing Officer to the Company. 156

BAJAJ AUTO FINANCE LIMITED Printing of Bank particulars on Interest/Redemption Warrants As a matter of precaution against possible fraudulent encashment of refund orders and interest/redemption warrants due to loss or misplacement, the particulars of the applicants bank account are mandatorily required to be given for printing on the refund orders and interest/redemption warrants. Bank account particulars will be printed on the orders/warrants which can then be deposited only in the account specified. This facility is over and above the Electronic Clearing Service facility for payment of Interest/Redemption proceeds as mentioned herein. The Company will in no way be responsible if any loss occurred through these instruments falling into improper hands either through forgery or fraud. Electronic Clearing Service for Payment of Interest/Redemption Proceeds RBI has introduced the concept of Electronic Clearing Service (ECS) through the clearing house to obviate the need for issuing and handling paper instruments and thereby facilitate improved customer service. This facility would be available in cities where RBI provides such a facility. The Company may provide this facility to NCD holders. As per the guidelines issued by RBI in this regard, the investor is required to give his mandate for ECS with all the details as per the RBI prescribed format. This will help the Company to credit the interest on the NCD and redemption of NCD amount to the investors account with the concerned bank at the earliest. The investors will also have the convenience of a direct credit to their bank account without the need to receive interest warrants by post and deposit the same in their bank accounts. The bank branch will credit the investors account and indicate the credit entry with ECS in the passbook/statement of account. Subsequent to dispatch of the NCD Certificate(s)/Letter(s) of Allotment, the Company/Share Transfer Agent may send to the investor a form to be duly filled up by those investors desiring to avail the facility of ECS. Investors who do not opt for ECS will be sent the interest warrants by post. Debenture Redemption Reserve The Company shall create a Debenture Redemption Reserve in terms of Section 117C of the Act and SEBI Guidelines as may be in force from time to time. Agents and Trustees for the NCD holders The Company has appointed IL&FS Trust Company Trustees for the holders of the NCDs offered through this Letter of Offer (hereinafter referred to as the Trustees). The Trustees have vide their letter dated July 19, 2006 consented to act as trustees for the holders of the NCDs offered through this Letter of Offer. The Trustee may, with the written consent in holder(s) of the NCDs representing not less than three-fourths in value of the nominal amount of the NCDs being outstanding or by a Special Resolution duly passed at a Meeting of the NCD holders, raise or borrow monies on the security of the Mortgaged Properties or any part thereof ranking either in priority or pari passu or subsequent to these presents as the Trustee with such consent or sanction shall decide, for the purpose of making any payment under or by virtue of these presents or in relation to the exercise of any powers, duties or obligations of the Trustee or otherwise in relation to the Mortgaged Properties or the presents under the Debenture Trust Deed, or for the purpose of paying off or discharging any mortgages or charges for the time being existing on the Mortgaged Properties or any part thereof or any costs, charges and expenses which shall be incurred by the Trustee under or by virtue of these presents and the Trustee may raise and borrow such monies as aforesaid at such rate or rates of interest and generally on such terms and conditions as the Trustee shall think fit and no person lending any such money shall be concerned to inquire as to the propriety or purpose of the exercise of the said power or to see to the application of any monies so raised or borrowed. The Trustee may, in its discretion, and shall, upon request in writing of the holders of the NCDs of an amount representing not less then three-fourth in value of the nominal amount of the NCDs, for the time being outstanding, or by a special resolution duly passed at a meeting of the NCD holders, by a notice in writing to the Company declare the principal amount of the NCDs, all interest and all other monies to be due and payable forthwith and the security created hereunder shall become enforceable, and the Trustee shall have 157

BAJAJ AUTO FINANCE LIMITED the following rights namely:(a) Subject to Section 69 of the Transfer of Property Act, to sell, assign or otherwise liquidate or direct the Company to sell, assign or otherwise liquidate any or all of the mortgaged premises, in such manner, at such time, at such place or places and on such terms as the Trustee may, in compliance with the requirements of law, determine in its absolute discretion and to take possession of the proceeds of any such sale or liquidation; to take possession of the mortgaged premises or any part thereof, by directing the Company in writing to deliver the same to the Trustee at any place or places designated by the Trustee, in which event the Company shall, at its own expense: (i) (ii) forthwith cause the same to be moved and delivered to the place or places so designated by the Trustee; keep any mortgaged premises to be delivered to the Trustee (to the extent not physically delivered to the Trustee) at such place or places pending further action by the Trustee as provided in these presents; and

(b)

(iii) while such mortgaged premises shall be so kept, provide such guards and maintenance services as shall be necessary to protect the same; It being understood that the Companys obligation to move, keep or otherwise deliver the mortgaged premises is the essence of the presents under the Debenture of Trust and that the Trustee shall be entitled to request and be eligible to obtain a decree requiring specific performance by the Company of its aforesaid obligation; (c) to retain all cash proceeds received or receivable by the Company in respect of the mortgaged premises and to use such funds, in whole or part, towards repayment of the Companys obligations to the NCD holders and/or the Trustee under these presents.

The events of default that may occur are: Default is committed in payment of the principal amount of the NCDs on the due date(s); Default is committed in the payment of any interest on the NCDs on the due date(s); Default is committed in payment of any another monies including costs, charges and expenses incurred by the Trustee. Default is committed in the performance or observance of any covenant, condition or provision contained in the presents under the Debenture Trust Deed and/or the Terms of the Issue pertaining to the NCDs (other than the obligation to pay principal and interest) and, except where the Trustee certifies that such default is in its opinion incapable of remedy (in which case no notice shall be required), such default continues for thirty days after written notice has been given thereof by the Trustee to the Company requiring the same to be remedied; Any indebtedness of the Company for borrowed monies, that is, indebtedness for and in respect of monies borrowed or raised (whether or not for cash consideration) by whatever means (including acceptance, credits, deposits and leasing) becomes due prior to its stated maturity by reason of default of the terms thereof or any such indebtedness is not paid at its stated maturity; Any information given by the Company to the NCD holders or the Trustee and the warranties given or deemed to have been given by it to the NCD holders or the Trustee is misleading or incorrect in any material respect; If there is reasonable apprehension that the Company is unable to pay its debts or proceedings for taking it into liquidation, whether voluntarily or compulsorily, may be or have been commenced or any resolution for voluntary winding-up is passed or a competent Court admits any petition for windingup; 158

BAJAJ AUTO FINANCE LIMITED If the mortgaged premises have not been kept insured or depreciate in value to such an extent that in the opinion of the Trustee further security should be given and on advising the Company to the effect such security has not been given to the Trustee to its satisfaction; If without the prior written approval of the Trustee, the mortgaged properties or any part thereof are sold, disposed off, charged, encumbered or alienated, pulled down or demolished, other that as provided in the Debenture Trust Deed; The Company has voluntarily or involuntarily become the subject of proceedings under any bankruptcy or insolvency law or the Company is voluntarily or involuntarily dissolved: The Company is unable to or has admitted in writing its inability to pay its debts as and when the same are due or it is certified by an accountant appointed by the Trustee that the Companys liabilities exceed its assets; An encumbrancer, receiver or liquidator takes possession of the mortgaged properties or any part thereof, or has been appointed or allowed to be appointed of all or any part of the undertaking of the Company and such appointment is, in the opinion of the Trustee, prejudicial to the security hereby created; If an attachment or distraint has been levied on the mortgaged properties or any part thereof or certificate proceedings have been taken or commenced for recovery of any dues from the Company; If any extra-ordinary circumstances have occurred which make it improbable for the Company to fulfil its obligations under these presents and/or the NCDs; The Company ceases or threatens to cease to carry on its business or gives notice of its intention to do so; If the Company is unable to pay its debts within the meaning of Section 434 of the Companies Act or if the Company is carrying on business at a loss and it appears to the Trustee that continuation of its business will endanger the security hereby created; If in the opinion of the Trustee, the Security of the NCD holders is in jeopardy; If the Company creates any mortgage, charge, lien or other encumbrance over or assigns or transfers or attempts to assign or transfer any of the mortgaged properties, without the prior consent in writing of the Trustee; If the Company enters into amalgamation, reorganisation or reconstruction without the prior consent of the Trustee in writing; If the Company shall, without the prior consent of the Trustee in writing, make or attempt to make any alteration to its Memorandum and Articles of Association, which, in the opinion of the Trustee, affects the interest of the NCD holders.

Security The redemption of the principal amount of the Debentures, payment of all interest, remuneration of the Debenture Trustees, all fees, costs, charges, expenses and all other monies payable in respect thereof, will be secured by a pari passu charge with the Companys Bankers, in favour of Debenture Trustees by way of hypothecation of book-debts of the Company and a charge by way of mortgage of the Companys Flat at Nayan Co-op. Housing Society Ltd., Pune. Further Issues/Borrowings The Company shall be entitled, from time to time to make further issue of debentures and/or raise term loans or raise further funds from time to time by such other debt instruments or other securities (whether or not the same constitutes securities for the purposes of the Act or the Securities (Contracts Regulations) Act, 1956 to the public, of any section of the public in India or any part of the world, members of the Company, by way of a private placement or bilateral arrangements and/ or avail of further financial and or guarantee 159

BAJAJ AUTO FINANCE LIMITED facilities from financial institutions, banks and/or any other person(s) on the security or otherwise of its property or against any security provided by any third party security provider without the consent of the NCD Holders. However, until the NCDs are fully redeemed, the Company shall not create any mortgage or charge on any of its properties or assets without obtaining prior written approval of the Trustee Rights of NCD holders The NCDs shall rank pari passu inter se without any preference or priority of one over the other or others of them. The NCD shall be transferable and transmittable in the same manner and to the same extent and be subject to the same restrictions and limitations as in the case of the Ordinary Shares of the Company. The provisions relating to transfer and transmission and other related matters in respect of Ordinary Shares of the Company contained in the Articles and the Act shall apply, mutatis mutandis, to the NCD as well. The NCD holders will not be entitled to any right and privileges of the Shareholders of the Company other than those available to them under statutory requirements. The NCDs shall not confer upon the NCD holders the right to receive notice, or to attend and vote at the general meetings of shareholders or the NCD holders or any other class of securities of the Company. The rights, privileges, terms and conditions attached to the NCDs may be varied, modified or abrogated with the consent, in writing, of those holders of the NCDs (or through the Trustee) who hold at least threefourths of the outstanding amount of the NCDs (of the current issue) or with the sanction accorded pursuant to a resolution passed at the meeting of the NCD holders; provided that nothing in such consent or resolution shall be operative against the Company where such consent or resolution modifies or varies the terms and conditions governing the NCDs and the same are not acceptable to the Company. The Company shall, as required by Section 152 of the Companies Act, keep a Register of the Debenture holders and enter therein the particulars prescribed under the said Section. The Trustee or the Company may, at any time, and the Trustee shall at the request in writing of the holder(s) of NCDs representing not less than one-tenth in value of the nominal amount of the NCDs for the time being outstanding, convene a meeting of the holders of the NCDs by giving not less than 21 days notice in writing. Provided that a meeting may be called by giving shorter notice if the consent of the NCD holders representing not less than 95% of the NCDs remaining outstanding is accorded. The accidental omission to give notice to, or the non-receipt of notice by, any NCD holder or other person to whom it should be given shall not invalidate the proceedings at the meeting. The quorum for a meeting of the NCD holders shall be five (5) NCD holders, personally present or holders of not less than 10% of the outstanding amount of the NCDs. The nominee of the Trustee shall be the Chairman of the meeting of the NCD holders and in his absence, the NCD holders personally present at the meeting shall elect one of themselves to be the Chairman thereof on a show of hands. At every such meeting each NCD holder shall, on a show of hands, be entitled to one vote only, but on a poll he shall be entitled to one vote in respect of every NCD of which he is a holder in respect of which he is entitled to vote. The NCD will be subject to any other terms and conditions to be incorporated in the Agreement/Trust Deed(s) to be entered into by the Company with the Trustees and the NCD Certificates/ Allotment Letters that will be issued.

Procedure for Redemption of NCDs Payment on part or final redemption of the NCD will be made to those NCD holders whose names appear in the Register of NCD holders (or to first holder in case of joint-holders) as on record date/book closure date to be fixed by the Company for this purpose from time to time. No surrender of the NCD certificates 160

BAJAJ AUTO FINANCE LIMITED is required and its Face Value will automatically stand reduced to the extent of the payment made to the NCD holder on part or final redemption. On payment of the final redemption proceeds, the NCD Certificate shall automatically stand cancelled. The record date for this purpose would be fixed in consultation with the Stock Exchanges at least 30 calendar days prior to the relevant part/final redemption date. Such dates would be intimated to the Stock Exchanges where the NCDs are proposed to be listed. No separate notice would be published by the Company in this regard. Buyers of the NCD are advised to send the NCD Certificates to the Company Limited or to such persons as may be notified by the Company from time to time, along with a duly executed Transfer Deed for registration of transfer of the NCD. If the request for transfer of the NCD is not received by, or on, the record date fixed by the Company for the said part/final redemption, the part/final redemption proceeds will be paid to the seller and not to the buyer. In such cases, any claims, shall be settled inter-se between the parties and no claim or action shall lie against the Company. Payment on part or final redemption will be made by cheque payable at par at all such places where the applications were originally accepted. At other places, the Company reserves the right to adopt any other suitable mode of payment. The Companys liability to the NCD holder(s) towards their rights including for payment or otherwise shall stand extinguished from the date of final redemption in all events and on the Company dispatching the final redemption amounts to the NCD holder(s). Further, the Company will not be liable to pay any interest, income or compensation of any kind from the date of redemption of the NCD(s). Modification to the Terms of the NCDs Any modification to the terms of issue pertaining to the NCDs would be carried out only with the prior approval of the NCD holders and Trustees. This would be done by convening their special class meeting in accordance with the provisions of the Companies Act, 1956 and taking their approval by a simple majority to the terms of modification sought, from the NCD holders present and voting. Repurchase and Right to Reissue NCD The Company may, at its discretion, at any time purchase the NCD at discount, at par or at a premium in the open market or otherwise. Such NCD may, at the option of the Company, be cancelled, held, reissued or resold at such price and on such terms and conditions as the Company may deem fit and as permitted by law. Where the Company has redeemed or repurchased any NCD, the Company shall have and shall be deemed always to have had the right to keep such NCD alive without extinguishment for the purpose of resale or reissue and in exercising such right, the Company shall have and be deemed always to have had, the power to resell or reissue such NCD either by reselling or reissuing the same NCD or by issuing any other NCD in its place. This includes the right to reissue the original NCD. Arrangement for buyback of the Non Convertible Debentures For the benefit of the prospective applicants in this Issue, the Company along with JM Morgan Stanley Private Limited (JMMS), has finalized arrangements for sale by the applicants, if they so wish, of the Non Convertible Debentures (Khokha Buy-back Scheme). Attention to the scheme is drawn of those applicants who would be interested in disposing of the NCD whilst simultaneously retaining the share warrants attached to the NCD. The intention to opt for Khokha Buy-back Scheme will have to be confirmed by the applicant while making the application. Specifically the Scheme would work as under: a) All applicants, eligible to apply for the NCD, have an option to offer for sale the NCD (Khokha) to the extent of the NCD(s) that may be allotted to them. An applicant shall have to exercise this option of offer for sale with respect to the Khokha of all the NCD that may be allotted to the applicant. In no case can the applicant exercise his option with respect to Khokha of only part of the NCD(s) that may be allotted to the applicant. 161

BAJAJ AUTO FINANCE LIMITED b) The applicant opting for Khokha buy-back must have a clear and unencumbered title to the Khokha offered for sale. The transferee shall have a warranty of title in respect of the Khokha comprised in such sale. The sale shall be free from all claims, liens, charges and encumbrances of whatsoever nature (except to the extent provided in respect of partly paid NCD under the terms of the Issue). The transferor shall keep the transferee indemnified against any loss or damage arising on account of any defect that may subsequently be found in the title or signature of the transferor. The Khokha of Face Value of Rs. 500/- with Rs. 125/- paid-up per NCD may be offered for sale at a net price of Rs. 77/- per Khokha (inclusive of accrued interest, if any). The said purchase price of Rs. 77/- is no indication of the price at which the Khokha will be quoted and traded on the floor of the Stock Exchanges. The applicant who will be exercising the option to sell the Khokha will be doing so at an upfront discount of Rs. 48/- on the paid-up value of the Khokha. If the option to sell the Khokha is exercised, the effective cost per Ordinary Share on exercise of the Detachable Warrant would be Rs.548/-. Under the terms of the Issue, Rs. 125/- per NCD is payable on application and an amount of Rs.375/per NCD is payable on allotment. In such case the applicants liability to pay the allotment money will stand reduced from Rs. 375/- per NCD to Rs. Nil as the purchaser of the Khokha would directly pay to the Company the allotment money pertaining to the Khokha to the extent of Rs. 375/- per NCD. Further, JMMS would pay Rs. 77/- to the applicants who have opted for the Khokha Buy-back Scheme within three weeks of date of finalisation of the basis of allotment. Applicants who wish to sell the Khokha that may be allotted to them should give their consent by signing the Part E of the CAF. By signing the declaration at the appropriate place in the CAF, the applicant shall be deemed to have authorised the Company to issue such NCD in electronic form and credit the same to an Escrow Account to be opened by JMMS for this purpose. JMMS would act as agent of the applicants and the applicant would authorise JMMS to receive payment on his/her/their behalf from the purchasers of Khokhas. In case you have not signed Part E of the CAF then it will be assumed that you do not intend to participate in the Khokha Buy-back Scheme. g) h) i) The transaction for sale of NCD allotted and their purchase shall be a spot delivery transaction in terms of the provisions of the Securities Contracts (Regulation) Act, 1956 and Rules made thereunder. Khokha buy-back from Non residents would be subject to the approval of RBI. The Scheme is purely voluntary in nature and is based on the terms and conditions from (a) to (i) above. The applicants for NCD are free to make any other arrangements for disposal of the NCD.

c)

d)

e)

f)

IT IS EXPRESSLY BROUGHT TO THE NOTICE OF THE APPLICANTS THAT THE COMPANY DOES NOT HAVE ANY INTEREST IN THE KHOKHA BUY-BACK OFFER. IT IS ENTIRELY AT THE DISCRETION OF THE APPLICANT TO OPT FOR THIS OFFER OR TO RETAIN THE NCD OR TO DISINVEST THE NCD IN ANY OTHER MANNER. DETACHABLE WARRANTS Entitlement For allotment of every NCD being offered, one detachable Warrant would be issued. This Warrant can be freely and separately traded. The Warrant holder will be entitled to exercise his right to apply for one Equity Share of Rs. 10 each at the Warrant Exercise Price for each Warrant held, at any time during the Warrant Exercise Period. Warrant Exercise Period Warrant Exercise Period shall be for the period commencing after 12 months from the Date of Allotment up to the end of 35 months from the Date of Allotment. Warrant holders can exercise their right to apply for 162

BAJAJ AUTO FINANCE LIMITED the Equity Share(s) at the Warrant Exercise Price at any time during the Warrant Exercise Period. No record date will be fixed by the Company for this purpose. Further, the Warrants not exercised in the Warrant Exercise Period shall lapse. The Company shall give at least 30 days prior notice to the warrant holder intimating them regarding the closure of the warrant exercise period. For valid applications received along with the Warrant Exercise Price during the Warrant Exercise Period, whether received in physical form or through transfer to the Escrow Account opened for the purpose, till the last working day of a calendar month of the Company shall be deemed to have been allotted on the 10th day of the succeeding calendar month (if the 10th calendar day is a holiday, the deemed Date of Allotment shall be the succeeding working day). In this regard, the Company shall disregard applications which are liable for rejections, due to such factors including incidence of dishonour of payment instrument or short payment. Warrant Exercise Price Warrant Exercise Price shall be Rs. 500 The Warrant Exercise price would be adjusted for any further bonus issue made by the Company prior to the Warrant Exercise Period so as to ensure that the benefit to the Warrant holder is not prejudiced and remains the same as if the bonus would not have been declared. For example, should the Company declare a bonus issue prior to the Warrant Exercise Period in the ratio of 1:1, then the Warrant Exercise Price would be half of the Warrant Exercise Price as aforesaid. In case the Company announces a rights issue during the tenure of the Warrants, neither would any adjustment be made to the Warrant Exercise Price nor would there be any reservations for Warrant holders. The face value of each Equity Share of the Company is Rs.10/-. In the event of any sub-division or consolidation of the face value, the share entitlement on each Warrant shall be proportionately increased/decreased such that the aggregate nominal value of the entitlement remains the same as the nominal value of the Equity Shares immediately prior to such subdivision or consolidation e.g. in case the Company decides to reduce the face value of Equity Shares to Rs. 5 each, then upon exercise of each Warrant by making payment under the Warrant Exercise Price, the Warrant holder would get two Equity Shares of Rs. 5 each instead of one Equity Share of Rs. 10 each. The investors may also note that the Warrant Exercise price of Rs. 500 per Warrant should not be taken to be indicative of the market price of the Equity Shares, whether presently or after the Equity Shares issued upon the conversion of Warrants are listed. No assurance can be given regarding the active / sustained trading in the Equity Shares or the price at which the Equity Shares offered under the present Issue will trade either after the listing or at the time of exercise of Warrants. Procedure for Conversion of Detachable Warrants being issued with NCDs under this Issue Application for issue of Equity Shares should be made on the prescribed Warrant Exercise Application Form. This application form would be sent to all the Warrant holders separately. The same would also be available on request with our Secretarial department and during the Warrant Conversion Period can be downloaded from our web-site www.bajajfinance.com. In case of Warrant held in Physical Mode: During the Warrant Exercise Period, the Warrant holder should send his application for issue of Equity Shares to our Secretarial Department located at C/o. Bajaj Auto Limited, Mumbai-Pune Road, Akurdi, Pune 411 035, by filling up the requisite particulars on the Warrant Exercise Application Form and by discharging on the reverse of the Warrants certificate. It should be accompanied by a cheque/demand draft favoring Bajaj Auto Finance Limited payable at Pune for the requisite amount. In case of Warrants held in Demat Form: During the Warrant Exercise Period, the Warrant holder should send his application for issue of Equity Shares to our Secretarial Department located at C/o. Bajaj Auto Limited, Mumbai-Pune Road, Akurdi, Pune 411 035, by filling up the said application form. It should be accompanied by cheque/demand draft favouring Bajaj Auto Finance Limited for the requisite amount. Warrant holders should concurrently transfer their dematerialized holdings to the Escrow Account to be opened by the Company by marking this as an off market transaction. Details of the Escrow Account would be mentioned in the Warrant Exercise Application Form to be provided by the Company.

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BAJAJ AUTO FINANCE LIMITED Modification to the Terms of the Warrants Any modification to the terms of issue and exercise of the Warrants would be carried out only with the prior approval of the Warrant holders. This would be done by convening their special class meeting in accordance with the provisions of the Companies Act, 1956 and taking their approval by a simple majority to the terms of modification sought, from the Warrant holders present and voting. Rights of Warrant holders The Warrants shall be transferable and transmittable in the same manner and to the same extent and be subject to the same restrictions and limitations and other related matters as in the case of Equity Shares of the Company. The Warrants shall not confer upon the holders thereof any right to receive any notice of the meeting of the Shareholders of the Company or Annual Report of the Company and or to attend/vote at any of the General Meetings of the Shareholders of the Company held, if any. Save and except the right of subscription to the Companys Equity Shares as per the terms of the Issue of Warrants, the holders of the Warrants in their capacity as Warrant holders shall have no other rights or privileges.

The Warrant holders inter-se, shall rank pari passu without any preference or priority of one over the other or others. All the above rights of the Warrant holders shall lapse automatically if the Warrants are not converted within 35 months from the date of their allotment or the date specified in the notice for call option and the unexercised Warrant shall automatically be treated as cancelled. A separate register of Warrant holders would be maintained by the Company. Ranking of the Equity Shares The Equity Shares issued and allotted on a Rights Basis as a part of this Issue and the Equity Shares allotted on conversion of the Detachable Warrants shall be subject to the Memorandum and Articles of Association of the Company and shall rank pari passu in all respects including dividends with the existing Equity Shares of the Company. Options available to Equity Shareholders The Composite Application Form clearly indicates the number of Equity Shares and NCDs that the Equity Shareholder is entitled to. If the Equity Shareholder applies for an investment in Equity Shares, then he can: Apply for his entitlement of Equity Shares and/or NCDs with detachable Warrants in part; Apply for his entitlement of Equity Shares and/or NCDs with detachable Warrants in part and renounce the other part of the Equity Shares and/or NCDs with detachable Warrants; Apply for his entitlement for Equity Shares and/or NCDs with detachable Warrants in full; Apply for his entitlement in full and apply for additional Equity Shares and/or NCDs with detachable Warrants.

Renouncees for Equity Shares and NCDs with detachable Warrants can apply for the Equity Shares or NCDs with detachable Warrants renounced to them and also for additional Equity Share and/or NCD with detachable warrants. Market lot The market lot for the Equity Shares, NCD and Warrants in dematerialised mode is one. In case of physical certificates, the Company would issue one certificate per folio for the Equity Shares (allotted to one folio) and one certificate for the NCDs (allotted to one folio) and detachable Warrants (allotted to one folio) with a split perforation. (in each case, a 164

BAJAJ AUTO FINANCE LIMITED "Consolidated Certificate"). In respect of the Consolidated Certificate, the Company will, upon receipt of a request from the Equity Shareholder/NCD holder/Warrant holder, split such Consolidated Certificate into smaller denomination within one fortnight's time from the request of the Equity Shareholders/NCD holder/Warrant holders in conformity with its Articles of Association. No fee would be charged by the Company for splitting the Consolidated Certificate. Offer to Non-Resident Equity Shareholder/ Applicants Applications received from NRIs and non-residents for allotment of Equity Shares, NCDs and detachable Warrants shall be inter alia, subject to the conditions imposed from time to time by the RBI under the FEMA in the matter of refund of application monies, allotment of Equity Shares/NCDs with detachable Warrants, issue of letter of allotment / share certificates, payment of interest, dividends, etc. General permission has been granted to any person resident outside India to purchase shares offered on rights basis by an Indian company in terms of FEMA and regulation 6 of notification No. FEMA 20/2000-RB dated May 03, 2000. The Board of Directors may at its absolute discretion, agree to such terms and conditions as may be stipulated by RBI while approving the allotment of Equity Shares, NCDs with detachable Warrants, payment of dividend etc. to the non-resident shareholders. The rights shares purchased by non-residents shall be subject to the same conditions including restrictions in regard to the repatriability as are applicable to the original shares against which rights shares are issued. By virtue of Circular No. 14 dated September 16, 2003 issued by the RBI, overseas corporate bodies (OCBs) have been derecognized as an eligible class of investors and the RBI has subsequently issued the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)) Regulations, 2003. Accordingly, OCBs shall not be eligible to subscribe to the Equity Shares. The RBI has however clarified in its circular, A.P. (DIR Series) Circular No. 44, dated December 8, 2003 that OCBs which are incorporated and are not under the adverse notice of the RBI are permitted to undertake fresh investments as incorporated non-resident entities. Thus, OCBs desiring to participate in this Issue must obtain prior approval from the RBI. On providing such approval to the Company at its registered office, the OCB shall receive the Letter of Offer and the CAF. Joint-holders Where two or more persons are registered as the holders of any Equity Shares/NCDs/Warrants, they shall be deemed to hold the same as joint tenants with the benefit of survivorship subject to the provisions contained in the Articles. Nomination A sole Equity Shareholder/NCD holder/Warrant holder or first Equity Shareholder/NCD holder/Warrant holder, along with other joint Equity Shareholders/Warrant holders being individual(s) may nominate any person(s) who, in the event of the death of the sole holder or all the joint-holders, as the case may be, shall become entitled to the Equity Shares/NCDs/Warrants. A Person, being a nominee, becoming entitled to the Equity Shares/Warrants by reason of the death of the original Equity Shareholder(s)/NCDs/Warrant holder(s), shall be entitled to the same advantages to which he would be entitled if he were the registered holder of the Equity Shares/NCDs/Warrants. Where the nominee is a minor, the Equity Shareholder(s)/NCD holder(s)/Warrant holder(s) may also make a nomination to appoint, in the prescribed manner, any person to become entitled to the Equity Share(s)/NCD(s)/Warrant(s), in the event of death of the said holder, during the minority of the nominee. A nomination shall stand rescinded upon the sale of the Equity Share/NCD/Warrant by the person nominating. A transferee will be entitled to make a fresh nomination in the manner prescribed. When the Equity Share/NCD/ Warrant is held by two or more persons, the nominee shall become entitled to receive the amount only on the demise of all the holders. Fresh nominations can be made only in the prescribed form available on request at the registered office of the Company or such other person at such addresses as may be notified by the Company. The applicant can make the nomination by filling in the relevant portion of the CAF. Only one nomination would be applicable for one folio. Hence, in case the Shareholder(s)/NCD holder(s)/ Warrant holder(s) has already registered the nomination with the Company, no further nomination needs to be made for Equity Shares to be allotted in this Issue under the same folio. 165

BAJAJ AUTO FINANCE LIMITED In case the allotment of Equity Shares is in dematerialised form, there is no need to make a separate nomination for the Equity Shares to be allotted in this Issue. Nominations registered with respective DP of the applicant would prevail. If the applicant requires to change the nomination, they are requested to inform their respective DP. Notices All notices to the Equity Shareholders/NCD holders/Warrant holders required to be given by the Company shall be published in one English national daily with wide circulation, one Hindi national daily with wide circulation and one Marathi daily in Pune and Mumbai with wide circulation and/or, will be sent by ordinary post to the registered holders of Equity Shares/NCDs/Warrants from time to time. Issue of duplicate Equity Share Certificate/NCD Certificate/Warrant Certificate If any Equity Share Certificate/NCD Certificate/Warrant Certificate is mutilated or defaced or the pages for recording transfers of Equity Shares/NCDs/Warrants are fully utilized, the same may be replaced by the Company against the surrender of such Certificate(s). Provided, where the Equity Share Certificate(s)/NCD Certificate(s)/ Warrant Certificate(s) are mutilated or defaced, the same will be replaced as aforesaid only if the Certificate numbers and Distinctive numbers are legible. If any Equity Share Certificate/NCD Certificate/Warrant Certificate is destroyed, stolen or lost, then upon production of proof thereof to the satisfaction of the Company and upon furnishing such indemnity/surety and/or other documents as the Company may deem adequate, duplicate Equity Share Certificate(s)/NCD Certificate(s)/Warrant Certificate(s) shall be issued. Procedure for Application The CAF for Equity Shares would be printed in white colour and the CAF for the NCDs with detachable Warrants would be printed in blue colour for all Equity Shareholders, with an additional separate advise for non-resident Equity Shareholders. In case the original CAF is not received by the applicant or is misplaced by the applicants, the applicants may request the Registrar to the Issue, Intime Spectrum registry Limited, for issue of a duplicate CAF, by furnishing the registered folio number, DP ID number, client ID number and their full name and address. Non-resident Equity Shareholders can obtain a copy of the CAF from the Registrars to the Issue, Intime Spectrum Registry Limited, from their office located at c-13 Pannalal Silk Mills Compound, LBS Marg, Bhandup (W), Mumbai 400 078 by furnishing the registered folio number, DP ID number, Client ID number and their full name and address. Acceptance under the Issue You may accept and apply for the Equity Shares and/or the NCDs with detachable Warrants offered, either in full or in part by filling in Part A of the enclosed CAFs and submitting the same along with the application money payable to the bankers to the Issue or any of the collection branches as mentioned on the reverse of the CAF before the close of the banking hours on or before the Issue Closing Date or such extended time as may be specified by the Board in this regard. Applicants at centres not covered by the branches of collecting banks can send their CAF together with the cheque drawn on a local bank at Mumbai / demand draft, net of bank and postal charges payable at Mumbai to the Registrar to the Issue by registered post. Such applications sent to anyone other than the Registrar to the Issue are liable to be rejected. Options available to the Equity Shareholders The CAF clearly indicates the number of Equity Shares and the NCDs with detachable Warrants that the Equity Shareholder is entitled to. If the Equity Shareholder applies for an investment in Equity Shares and/or NCDs with detachable Warrants, then he can:

Apply for his entitlement of Equity Shares and/or NCDs with detachable Warrants in part; Apply for his entitlement of Equity Shares and/or NCDs with detachable Warrants in part and renounce 166

BAJAJ AUTO FINANCE LIMITED the other part of the Equity Shares and/or NCDs with detachable Warrants;

Apply for his entitlement for Equity Shares and/or NCDs with detachable Warrants in full; Apply for his entitlement in full and apply for additional Equity Shares and/or NCDs with detachable Warrants.

Additional Equity Shares/NCDs with detachable Warrants You are eligible to apply for additional Equity Shares and/or NCDs with detachable Warrants over and above the number of Equity Shares or NCDs with detachable Warrants (as the case may be) you are entitled to, provided that you have applied for all the Equity Shares offered without renouncing them in whole or in part in favour of any other person(s). Applications for additional Equity Shares and/or NCDs with detachable Warrants shall be considered and allotment shall be in the manner prescribed under the section entitled Basis of Allotment on page 171 of this Letter of Offer. It may please be noted that Renouncees can also apply for additional Equity Shares and/or NCDs with detachable Warrants. In case of application for additional Equity Shares/NCDs with detachable Warrants by non-resident equity shareholders, the allotment of additional securities will be subject to the permission of the RBI. In case of change of status of a holder, i.e., from a Resident Indian to a Non-resident Indian, a new demat account shall be opened for the purpose. Where the number of additional Equity Shares/NCDs with detachable Warrants applied for exceeds the number available for allotment, the allotment would be made on a fair and equitable basis in consultation with the Designated Stock Exchanges. Renunciation This Issue includes a right exercisable by you to renounce the Equity Shares and/or the NCDs with detachable Warrants offered to you either in full or in part in favour of any other person or persons. Your attention is drawn to the fact that the Company shall not allot and/or register and Equity Shares/NCDs/ Warrants in favour of more than three persons (including joint holders), partnership firm(s) or their nominee(s), minors, HUF, any trust or society (unless the same is registered under the Societies Registration Act, 1860 or the Indian Trust Act or any other applicable law relating to societies or trusts and is authorized under its constitution or bye-laws to hold equity shares and NCDs with detachable Warrants, as the case may be). Any renunciation from Resident Indian Shareholder(s) to Non-resident Indian(s) or from Non-resident Indian Shareholder(s) to Resident Indian(s) or from Non-resident Indian shareholder(s) to other Non-resident Indian(s) is subject to the renouncer(s)/renounce(s) obtaining the approval of the FIPB and/or necessary permission of the RBI under the FEMA and such permissions should be attached to the CAF. Applications not accompanied by the aforesaid approvals are liable to be rejected. By virtue of Circular No. 14 dated September 16, 2003 issued by the RBI, overseas corporate bodies (OCBs) have been derecognized as an eligible class of investors and the RBI has subsequently issued the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies) Regulations, 2003. Accordingly, OCBs shall not be eligible to subscribe to the Equity Shares. The RBI has however clarified in its circular, A.P. (DIR Series) Circular No. 44, dated December 8, 2003 that OCBs which are incorporated and are not under the adverse notice of the RBI are permitted to undertake fresh investments as incorporated non-resident entities. Thus, OCBs desiring to participate in this Issue must obtain prior approval from the RBI. On providing such approval to the Company at its registered office, the OCB shall receive the Letter of Offer and the CAF. The Board reserves the right to reject the request for allotment to renounces in its sole and absolute discretion without assigning any reasons therefor. Procedure for renunciation To renounce the whole offer in favour of one renouncee If you wish to renounce the offer indicated in Part A, in whole, please complete Part B of the CAF. In case 167

BAJAJ AUTO FINANCE LIMITED of joint holding, all joint holders must sign Part B of the CAF. The person in whose favour renunciation has been made should complete and sign Part C of the CAF. In case of joint renouncees, all joint renouncees must sign this part of the CAF. To renounce in part/or renounce the whole to more than one person(s) If you wish to either accept this offer in part and renounce the balance or renounce the entire offer under this Issue in favour of two or more renouncees, the CAF must be first split into requisite number of forms. Please indicate your requirement of split forms in the space provided for this purpose in Part D of the CAF and return the entire CAF to the Registrar to the Issue so as to reach them latest by the close of business hours on the last date of receiving requests for split forms. On receipt of the required number of split forms from the Registrar, the procedure as mentioned in paragraph above shall have to be followed. In case the signature of the Equity Shareholder(s), who has renounced the Equity Shares and/or NCDs with detachable Warrants, does not agree with the specimen registered with the Company, the application is liable to be rejected. Renouncee(s) The person(s) in whose favour the Equity Shares and/or NCDs with detachable warrants are renounced should fill in and sign Part C of the Application Form and submit the entire Application Form to the Bankers to the Issue on or before the Issue Closing Date along with the application money. Renouncees can also apply for additional Equity Shares and/or NCDs with detachable Warrants. Change and/ or introduction of additional holders If you wish to apply for Equity Shares and/or NCDs with detachable warrants jointly with any other person(s), not more than three, who is/are not already a joint holder with you, it shall amount to renunciation and the procedure as stated above for renunciation shall have to be followed. Even a change in the sequence of the name of joint holders shall amount to renunciation and the procedure, as stated above shall have to be followed. However, this right of renunciation is subject to the express condition that the Board of Directors of the Company shall be entitled in its absolute discretion to reject the request for allotment from the renouncee(s) without assigning any reason thereof. Instructions for Options Please note that: Part A of the CAF must not be used by any person(s) other than those in whose favour the offer under this Issue has been made. If used, this will render the application invalid. Request for split form should be made for a minimum of one Equity Share or NCDs with detachable warrants and one Split Application Form for the balance Equity Shares or NCDs with detachable Warrants, if any. Request by the applicant for the Split Application Form should reach the Company on or before January 01, 2007. Only the person to whom this Letter of Offer has been addressed to and not the renouncee(s) shall be entitled to renounce and to apply for Split Application Forms. Forms once split cannot be split again. Split form(s) will be sent to the applicant(s) by post at the applicants risk.

Additional Equity Shares You are eligible to apply for additional Equity Shares and/or NCDs with detachable Warrants over and above the number of Equity Shares and NCDs with detachable Warrants you are entitled to, provided that you have

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BAJAJ AUTO FINANCE LIMITED applied for all the Equity Shares or NCDs with detachable Warrants offered, as the case may be, without renouncing them in whole or in part in favor of any other person(s). Applications for additional Equity Shares and/or NCDs with detachable Warrants shall be considered and allotment shall be in the manner prescribed under the section entitled Basis of Allotment on page 171 of this Letter of Offer. Renouncees can also apply for additional Equity Shares and/or NCDs with detachable Warrants. In case of application for additional Equity Shares and/or NCDs with detachable Warrants by non-resident Equity Shareholders, the allotment of additional securities will be subject to the permission of the RBI. Where the number of additional Equity Shares and/or NCDs with detachable Warrants applied for exceeds the number available for allotment, the allotment would be made on a fair and equitable basis in consultation with the Stock Exchanges. The summary of options available to the Equity Shareholder is presented below. You may exercise any of the following options with regard to the Equity Shares offered, using the enclosed CAF:
1. Option Available Accept whole or part of your entitlement without renouncing the balance. Action Required Fill in and sign Part A (All joint holders must sign)

2.

Accept your entitlement in full and apply for additional Equity Shares and/or NCDs with detachable Warrants Renounce your entitlement in full to one person (Joint renouncees are considered as one).

Fill in and sign Part A including Block III relating to the acceptance of entitlement and Block IV relating to additional Equity Shares (All joint holders must sign) Fill in and sign Part B (all joint holders must sign) indicating the number of Equity Shares renounced and hand it over to the renouncee. The renouncees must fill in and sign Part C (All joint renouncees must sign) Fill in and sign Part D (all joint holders must sign) requesting for Split Application Forms. Send the CAF to the Registrar to the Issue so as to reach them on or before the last date for receiving requests for Split Forms. Splitting will be permitted only once. On receipt of the Split Form take action as indicated below. For the Equity Shares and/or NCDs with detachable Warrants you wish to accept, if any, fill in and sign Part A. For the Equity Shares and/or NCDs with detachable Warrants you wish to renounce, fill in and sign Part B indicating the number of Equity Shares and/or NCDs with detachable Warrants renounced and hand it over to the renouncees. Each of the renouncees should fill in and sign Part C for the Equity Shares and/or NCDs with detachable Warrants accepted by them. This will be treated as a renunciation. Fill in and sign Part B and the renouncees must fill in and sign Part C.

3.

4.

Accept a part of your entitlement and renounce the balance to one or more renouncee(s) OR Renounce your entitlement to all the Equity Shares and NCDs with detachable Warrants offered to you to more than one renouncee

5.

Introduce a joint holder or change the sequence of joint holders

Availability of duplicate CAF In case the original CAF is not received, or is misplaced by the applicant, the Registrar to the Issue will issue a duplicate CAF on the request of the applicant who should furnish the registered folio number/ DP and Client ID number and his/ her full name and address to the Registrar to the Issue. Please note that the request for 169

BAJAJ AUTO FINANCE LIMITED duplicate CAF should reach the Registrar to the Issue within 15 days from the Issue Opening Date. Please note that those who are making the application in the duplicate form should not utilize the original CAF for any purpose including renunciation, even if it is received/ found subsequently. If the applicant violates any of these requirements, he / she shall face the risk of rejection of both the applications. Application on Plain Paper An Equity Shareholder who has neither received the original CAF nor is in a position to obtain the duplicate CAF may make an application to subscribe to the Issue on plain paper, along with Demand Draft, net of bank and postal charges payable at Mumbai. The demand draft should be drawn in favor of : For Resident Shareholders:
For Application of Equity Shares For Application of NCD with warrants BAFL - Rights Issue - Equity BAFL Rights Issue NCD

For Non Resident Shareholders:

For Application of Equity Shares For Application of NCD with warrants BAFL - Rights Issue Equity - NR BAFL Rights Issue NCD - NR

payable at Mumbai or New Delhi, in case of non-resident shareholders applying on repatriable basis and send the same by registered post directly to the Registrar to the Issue. The envelope should be superscribed BAFL - Rights Issue in case of resident shareholders and non-resident shareholders applying on non-repatriable basis and in favour of BAFL - Rights Issue NR in case of nonresident shareholders applying on repatriable basis. The application on plain paper, duly signed by the applicants including joint holders, in the same order as per specimen recorded with the Company, must reach the office of the Registrar to the Issue before the Issue Closing Date and should contain the following particulars:

Name of Issuer, being Bajaj Auto Finance Limited Name and address of the Equity Shareholder including joint holders Registered Folio Number/ DP and Client ID no. Number of Equity Shares held as on Record Date Number of Rights Equity Shares and NCDs with detachable Warrants entitled Number of Rights Equity Shares and/or NCDs with detachable Warrants applied for Number of additional Equity Shares and/or NCDs with detachable Warrants applied for, if any Total number of Equity Shares and/or NCDs with detachable Warrants applied for Total amount paid at the rate of Rs. 325 per Equity Share and Rs. 500 per NCD with detachable Warrant Particulars of cheque/draft Savings/Current Account Number and name and address of the bank where the Equity Shareholder will be depositing the refund order PAN/GIR number, Income Tax Circle/Ward/District, photocopy of the PAN card/ PAN communication / Form 60 / Form 61 declaration where the application is for Equity Shares (and/or NCDs with detachable Warrants) of a total value of Rs.50,000 or more for the applicant and for each applicant in case of joint names, and Signature of Equity Shareholders to appear in the same sequence and order as they appear in the records of the Company

170

BAJAJ AUTO FINANCE LIMITED Please note that those who are making the application otherwise than on original CAF shall not be entitled to renounce their rights and should not utilize the original CAF for any purpose including renunciation even if it is received subsequently. If the applicant violates any of these requirements, he/she shall face the risk of rejection of both the applications. The Company shall refund such application amount to the applicant without any interest thereon. Last date of Application The last date for submission of the duly filled in CAF is January 15, 2007. The Board or any committee thereof will have the right to extend the said date for such period as it may determine from time to time but not exceeding 60 (sixty) days from the Issue Opening Date. If the CAF together with the amount payable is not received by the Banker to the Issue/ Registrar to the Issue on or before the close of banking hours on the aforesaid last date or such date as may be extended by the Board/ Committee of Directors, the offer contained in this Letter of Offer shall be deemed to have been declined and the Board/ Committee of Directors shall be at liberty to dispose off the Equity Shares hereby offered, as provided under the section entitled Basis of Allotment. INVESTORS MAY PLEASE NOTE THAT THE EQUITY SHARES AND NCDs OF THE COMPANY CAN BE TRADED ON THE STOCK EXCHANGES ONLY IN DEMATERIALIZED FORM . Basis of Allotment Subject to the provisions contained in this Letter of Offer, the Articles of Association of the Company and the approval of the Designated Stock Exchange, the Board will proceed to allot the Equity Shares /NCDs with detachable Warrants in the following order of priority: (a) Full allotment to those Equity Shareholders who have applied for their rights entitlement either in full or in part and also to the renouncee(s) who has/ have applied for Equity Shares /NCDs with detachable Warrants renounced in their favour, in full or in part. If the shareholding of any of the Equity Shareholders is less than ten or is not in multiples of ten, then such shareholders would be given preferential allotment of one additional share each if they apply for additional shares. Further, if the shareholding of any of the Equity Shareholders is less than four (4) or is not in multiples of four (4), then such shareholders would be given preferential allotment of one additional NCD with detachable warrant each if they apply for additional NCD with warrants. The Equity Shares / NCD with detachable warrants needed for such rounding off shall be adjusted from the promoter groups entitlement at the time of allotment. (For further details please see the section Terms of the Issue Fractional Entitlements on page 155 of this Letter of Offer) Allotment to the Equity Shareholders who having applied for all the Equity Shares /NCDs with detachable Warrants offered to them as part of the Issue and have also applied for additional Equity Shares /NCDs with detachable Warrants. The allotment of such additional Equity Shares /NCDs with detachable Warrants will be made as far as possible on an equitable basis having due regard to the number of Equity Shares held by them on the Record Date, provided there is an under-subscribed portion after making full allotment in (a) above. The allotment of such Equity Shares /NCDs with detachable Warrants will be at the sole discretion of the Board/Committee of Directors in consultation with the Designated Stock Exchange, as a part of the Issue and not preferential allotment. Allotment to renouncees who having applied for all the Equity Shares /NCDs with detachable Warrants renounced in their favour, have applied for additional Equity Shares /NCDs with detachable Warrants provided there is surplus available after making full allotment under (a), (b) and (c) above. The allotment of such Equity Shares /NCDs with detachable Warrants will be at the sole discretion of the Board/ Committee of Directors in consultation with the Designated Stock Exchange, as a part of the Issue and not preferential allotment.

(b)

(c)

(d)

(e) Allotment to any other person as the Board may in its absolute discretion deem fit provided there is surplus available after making full allotment under (a), (b), (c) and (d) above. 171

BAJAJ AUTO FINANCE LIMITED After taking into account allotment to be made under (a) and (b) above, if there is any unsubscribed portion, the same shall be deemed to be unsubscribed for the purpose of regulation 3(1)(b) of the Takeover Code which would be available for allocation under (c), (d) and (e) above. The Promoter and the promoter group will subscribe to unsubscribed portion such that at least 90% of the Issue is subscribed. This acquisition of additional Equity Shares, if allotted to the Promoter shall be in terms of proviso to Regulation 3(1)(b)(ii) of the Takeover Code and will be exempt from the applicability of Regulation 11 and 12 of Takeover Code. This disclosure is made in terms of the requirement of Regulation 3(1)(b) of the Takeover Code. Further this acquisition will not result in change of control of management of the Company. As such, other than meeting the requirements indicated in the section on Objects of the Issue on page 20 of this Letter of Offer), there is no other intention/purpose for this Issue, including any intention to delist the Company, even if, as a result of allotments to the Promoters, in this Issue, the Promoters shareholding in the Company exceeds their current shareholding. The Promoter shall subscribe to such unsubscribed portion as per the relevant provisions of the law. Allotment to the Promoter of any unsubscribed portion, over and above their entitlement shall be done in compliance with the Listing Agreement and other applicable laws prevailing at that time relating to continuous listing requirements. Underwriting The present Issue is not underwritten. Allotment / Refund The Company will issue and dispatch letters of allotment/ share certificates/NCD certificates/demat credit and/ or letters of regret along with refund order or credit the allotted securities to the respective beneficiary accounts, if any, within a period of six weeks from the Issue Closing Date. If such money is not repaid within eight days from the day the Company becomes liable to pay it, the Company shall pay that money with interest as stipulated under Section 73 of the Act. In case of those Equity Shareholders who have opted to receive their Right Entitlement Shares and/or NCDs with detachable Warrants in dematerialised form by using electronic credit under the depository system, an advice regarding the credit of the Equity Shares and/or NCDs with detachable Warrants shall be given separately. In case the Company issues letters of allotment, the corresponding share certificates/NCD certificates will be kept ready within three months from the date of allotment thereof or such extended time as may be approved by the Companies Law Board under Section 113 of the Companies Act, 1956 or other applicable provisions, if any. Allottees are requested to preserve such letters of allotment, which would be exchanged later for the share certificates and/or NCD certificates. For more information, please refer to the section entitled Letters of Allotment / Share Certificates / NCD certificates / Demat Credit at page [] of this Letter of Offer. Letters of allotment/ share certificates/ NCD certificates / demat credit/ refund orders above the value of Rs. 1,500 will be dispatched by registered post/ speed post to the sole/ first applicants registered address. However, refund orders for value not exceeding Rs. 1,500 shall be sent to the applicants by way of under certificate of posting. Such cheques or pay orders will be payable at par at all the centres where the applications were originally accepted and will be marked A/c payee and would be drawn in the name of the sole/ first applicant. Adequate funds would be made available to the Registrar to the Issue for the dispatch of such letters of allotment/ share certificates/ demat credit and refund orders. As regards allotment/ refund to non-residents, the following further conditions shall apply: In case of non-residents, who remit their application monies from funds held in NRE/ FCNR accounts, refunds and/ or payment of interest/ dividend and other disbursement, if any, shall be credited to such accounts, details of which should be furnished in the CAF. Subject to the approval of the RBI, in case of non-residents, who remit their application monies through Indian Rupee draft purchased from abroad, refund and/ or payment of dividend/ interest and any other disbursement, shall be credited to such accounts (details of 172

BAJAJ AUTO FINANCE LIMITED which should be furnished in the CAF) and will be made net of bank charges/ commission in US Dollars, at the rate of exchange prevailing at such time. The Company will not be responsible for any loss on account of exchange fluctuations for converting the Indian Rupee amount into US Dollars. The share certificate(s) will be sent by registered post at the Indian address of the non-resident applicant. Letters of Allotment / Share Certificates / NCD certificates / Demat Credit Letter(s) of allotment/ share certificates/ NCD certificates / demat credit or letters of regret will be dispatched to the registered address of the first named applicant or respective beneficiary accounts will be credited within 6 (six) weeks, from the date of closure of the subscription list. In case the Company issues letters of allotment, the relative share certificates / NCD certificates will be dispatched within three months from the date of allotment. Allottees are requested to preserve such letters of allotment (if any) to be exchanged later for share certificates. Export of letters of allotment (if any)/ share certificates/ NCD certificates / demat credit to non-resident allottees will be subject to the approval of RBI. Option to receive Equity Shares and/or NCDs with detachable Warrants in Dematerialized Form Applicants to the Equity Shares and/or NCDs with detachable Warrants of the Company issued through this Issue shall be allotted the securities in dematerialised (electronic) form at the option of the applicant. The Company signed a bipartite agreement with National Securities Depository Limited (NSDL) on December 29, 1998 which enables the Investors to hold and trade in securities in a dematerialised form, instead of holding the securities in the form of physical certificates. The Company has also signed a bipartite agreement with Central Depository Services (India) Limited (CDSL) on March 22, 2000 which enables the Investors to hold and trade in securities in a dematerialised form, instead of holding the securities in the form of physical certificates. In this Issue, the allottees who have opted for Equity Shares and/or NCDs with detachable Warrants in dematerialized form will receive their Equity Shares in the form of an electronic credit to their beneficiary account with a depository participant. Investor will have to give the relevant particulars for this purpose in the appropriate place in the CAF. Applications, which do not accurately contain this information, will be given the securities in physical form. No separate applications for securities in physical and/or dematerialized form should be made. If such applications are made, the application for physical securities will be treated as multiple applications and is liable to be rejected. In case of partial allotment, allotment will be done in demat option for the shares sought in demat and balance, if any, will be allotted in physical shares. The Equity Shares, NCDs and warrants of the Company will be listed on the BSE & NSE. Please note that the NCDs issued cannot be traded after the date of allotment until the balance amount payable is received and corporate action for appropriation of the amounts received is taken and the NCDs are made fully paid-up. Procedure for availing the facility for allotment of Equity Shares and/or detachable Warrants in this Issue in the electronic form is as under:

Open a beneficiary account with any depository participant (care should be taken that the beneficiary account should carry the name of the holder in the same manner as is exhibited in the records of the Company. In the case of joint holding, the beneficiary account should be opened carrying the names of the holders in the same order as with the Company). In case of Investors having various folios in the Company with different joint holders, the Investors will have to open separate accounts for such holdings. Those equity shareholders who have already opened such Beneficiary Account (s) need not adhere to this step. For equity shareholders already holding Equity Shares of the Company in dematerialized form as on the Record Date, the beneficial account number shall be printed on the CAF. For those who open accounts later or those who change their accounts and wish to receive their Equity Shares pursuant to this Offer by way of credit to such account, the necessary details of their beneficiary account should be filled 173

BAJAJ AUTO FINANCE LIMITED in the space provided in the CAF. It may be noted that the allotment of securities arising out of this Issue may be made in dematerialized form even if the original Equity Shares of the Company are not dematerialized. Nonetheless, it should be ensured that the Depository Account is in the name(s) of the Equity Shareholders and the names are in the same order as in the records of the Company. Responsibility for correctness of information (including applicants age and other details) filled in the CAF vis--vis such information with the applicants depository participant, would rest with the applicant. Applicants should ensure that the names of the applicants and the order in which they appear in CAF should be the same as registered with the applicants depository participant. If incomplete / incorrect beneficiary account details are given in the CAF the applicant will get Equity Shares in physical form. The Equity Shares pursuant to this Offer allotted to Investors opting for dematerialized form, would be directly credited to the beneficiary account as given in the CAF after verification. Allotment advice, refund order (if any) would be sent directly to the applicant by the Registrar to the Issue but the applicants depository participant will provide to him the confirmation of the credit of such Equity Shares to the applicants depository account. Renouncees will also have to provide the necessary details about their beneficiary account for allotment of securities in this Issue. In case these details are incomplete or incorrect, the application is liable to be rejected. Utilisation of Proceeds Subscription received against this Issue will be kept in a separate bank account(s) and the Company would not have access to such funds unless it has received minimum subscription of 90%, of the Issue and the necessary approvals of the Stock Exchanges, to use the amount of subscription. General instructions for applicants a) b) Please read the instructions printed on the enclosed CAF carefully. Application should be made on the printed CAF, provided by the Company except as mentioned under the head Application on plain paper and should be completed in all respects. The CAF found incomplete with regard to any of the particulars required to be given therein, and/ or which are not completed in conformity with the terms of this Letter of Offer are liable to be rejected and the money paid, if any, in respect thereof will be refunded without interest and after deduction of bank commission and other charges, if any. The CAF must be filled in English and the names of all the applicants, details of occupation, address, fathers / husbands name must be filled in block letters. The CAF together with cheque / demand draft should be sent to the Bankers to the Issue / Collecting Bank or to the Registrar to the Issue and not to the Company or Lead Manager to the Issue. Applicants residing at places other than cities where the branches of the Bankers to the Issue have been authorised by the Company for collecting applications, will have to make payment by Demand Draft payable at Mumbai of an amount net of bank and postal charges and send their application forms to the Registrar to the Issue by REGISTERED POST. If any portion of the CAF is / are detached or separated, such application is liable to be rejected. Applications for a total value of Rs. 50,000 or more, i.e. where the total number of securities applied for multiplied by the Issue price, is Rs. 50,000 or more the applicant or in the case of application in joint names, each of the applicants, should mention his/ her PAN number allotted under the Income-Tax Act, 1961 and also submit a photocopy of the PAN card(s) or a communication from the Income Tax authority indicating allotment of PAN (PAN Communication) along with the application for the purpose of verification of the number. Applicants who do not have PAN are required to provide a declaration in Form 60 / Form 61 prescribed under the I.T.Act along with the application. CAFs without this photocopy/

c)

d)

174

BAJAJ AUTO FINANCE LIMITED PAN Communication/ declaration will be considered incomplete and are liable to be rejected. e) Applicants are advised that it is mandatory to provide information as to their savings/current account number and the name of the Company with whom such account is held in the CAF to enable the Registrar to the Issue to print the said details in the refund orders, if any, after the names of the payees. Application not containing such details is liable to be rejected. The payment against the application should not be effected in cash if the amount to be paid is Rs. 20,000 or more. In case payment is effected in contravention of this, the application may be deemed invalid and the application money will be refunded and no interest will be paid thereon. Payment against the application if made in cash, subject to conditions as mentioned above, should be made only to the Bankers to the Issue. Signatures should be either in English or Hindi or in any other language specified in the Eighth Schedule to the Constitution of India. Signatures other than in English or Hindi and thumb impression must be attested by a Notary Public or a Special Executive Magistrate under his/ her official seal. The Equity Shareholders must sign the CAF as per the specimen signature recorded with the Company. In case of an application under power of attorney or by a body corporate or by a society, a certified true copy of the relevant power of attorney or relevant resolution or authority to the signatory to make the relevant investment under this Offer and to sign the application and a copy of the Memorandum and Articles of Association and / or bye laws of such body corporate or society must be lodged with the Registrar to the Issue giving reference of the serial number of the CAF. In case the above referred documents are already registered with the Company, the same need not be a furnished again. In case these papers are sent to any other entity besides the Registrar to the Issue or are sent after the Issue Closing Date, then the application is liable to be rejected. In no case should these papers be attached to the application submitted to the Bankers to the Issue. In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as per the specimen signature(s) recorded with the Company. Further, in case of joint applicants who are renouncees, the number of applicants should not exceed three. In case of joint applicants, reference, if any, will be made in the first applicants name and all communication will be addressed to the first applicant. Application(s) received from Non-Resident / NRIs, or persons of Indian origin residing abroad for allotment of Equity Shares shall, inter alia, be subject to conditions, as may be imposed from time to time by the RBI under FEMA in the matter of refund of application money, allotment of Equity Shares, subsequent issue and allotment of Equity Shares, interest, export of share certificates, etc. In case a Non-Resident or NRI Equity Shareholder has specific approval from the RBI, in connection with his shareholding, he should enclose a copy of such approval with the CAF. All communication in connection with application for the Equity Shares and/or NCDs with detachable Warrants, including any change in address of the Equity Shareholders should be addressed to the Registrar to the Issue prior to the date of allotment in this Issue quoting the name of the first / sole applicant Equity Shareholder, folio numbers and CAF number. Please note that any intimation for change of address of Equity Shareholders, after the date of allotment, should be sent to the Registrar and Transfer Agents of the Company, in the case of Equity Shares held in physical form and to the respective depository participant, in case of Equity Shares held in dematerialized form. Split forms cannot be re-split. Only the person or persons to whom Equity Shares have been offered and not renouncee(s) shall be entitled to obtain split forms. Applicants must write their CAF number at the back of the cheque / demand draft. Only one mode of payment per application should be used. The payment must be either in cash or by cheque / demand draft drawn on any of the banks, including a co-operative bank, which is situated at and is a member or a submember of the Bankers Clearing House located at the centre indicated on the reverse of the CAF where the application is to be submitted. A separate cheque / draft must accompany each CAF. Outstation cheques / demand drafts or post-dated 175

f)

g)

h)

i)

j)

k)

l) m) n) o)

p)

BAJAJ AUTO FINANCE LIMITED cheques and postal / money orders will not be accepted and applications accompanied by such cheques / demand drafts / money orders or postal orders will be rejected. The Registrar will not accept payment against application if made in cash. (For payment against application in cash please refer point (g) above) No receipt will be issued for application money received. The Bankers to the Issue / Collecting Bank/ Registrar will acknowledge receipt of the same by stamping and returning the acknowledgment slip at the bottom of the CAF.

q)

Grounds for Technical Rejections Applicants are advised to note that applications are liable to be rejected on technical grounds, including the following: Amount paid does not tally with the amount payable for; Bank account details (for refund) are not given; Age of First Applicant not given; PAN photocopy/ PAN Communication/ Form 60 / Form 61 declaration not given if Application is for Rs. 50,000 or more; In case of Application under power of attorney or by limited companies, corporate, trust, etc., relevant documents are not submitted; If the signature of the existing shareholder does not match with the one given on the Application Form and for renouncees if the signature does not match with the records available with their depositories; If the Applicant desires to have shares in electronic form, but the Application Form does not have the Applicants depository account details; Application Forms are not submitted by the Applicants within the time prescribed as per the Application Form and the Letter of Offer; Applications not duly signed by the sole/joint Applicants; Applications by OCBs unless accompanied by specific approval from the RBI permitting the OCBs to invest in the Issue; Applications accompanied by Stockinvest; In case no corresponding record is available with the Depositories that matches three parameters, namely, names of the Applicants (including the order of names of joint holders), the Depositary Participants identity (DP ID) and the beneficiarys identity; Applications by US persons; Applications by ineligible Non-residents (including on account of restriction or prohibition under applicable local laws) and where last available address in India has not been provided.

Mode of payment for Resident Equity Shareholders/ Applicants All cheques / drafts accompanying the CAF should be drawn in favour of the Collecting Bank (specified on the reverse of the CAF), crossed A/c Payee only and marked
For Application of Equity Shares For Application of NCD with warrants BAFL - Rights Issue - Equity BAFL Rights Issue NCD

Applicants residing at places other than places where the bank collection centres have been opened by the Company for collecting applications, are requested to send their applications together with Demand Draft for the full application amount, net of bank and postal charges favouring the Bankers to the Issue, crossed A/c Payee only and marked

176

BAJAJ AUTO FINANCE LIMITED For Resident Shareholders:

For Application of Equity Shares For Application of NCD with warrants BAFL - Rights Issue - Equity BAFL Rights Issue NCD

payable at Mumbai directly to the Registrar to the Issue by registered post so as to reach them on or before the Issue Closing Date. The Company or the Registrar to the Issue will not be responsible for postal delays or loss of applications in transit, if any. Mode of payment for Non-Resident Equity Shareholders/ Applicants As regards the application by non-resident equity shareholders, the following further conditions shall apply: Payment by non-residents must be made by demand draft / cheque payable at Mumbai or funds remitted from abroad in any of the following ways: Application with repatriation benefits By Indian Rupee drafts purchased from abroad and payable at Mumbai or funds remitted from abroad (submitted along with Foreign Inward Remittance Certificate); or By cheque / draft on a Non-Resident External Account (NRE) or FCNR Account maintained in Mumbai; or By Rupee draft purchased by debit to NRE/ FCNR Account maintained elsewhere in India and payable in Mumbai; or. FIIs registered with SEBI must remit funds from special non-residents rupee deposit account. All cheques/drafts submitted by non-residents applying on repatriable basis should be drawn in favour of:

For Non Resident Shareholders:

For Application of Equity Shares For Application of NCD with warrants BAFL - Rights Issue Equity - NR BAFL Rights Issue NCD - NR

payable at Mumbai and crossed A/c Payee only for the amount payable. A separate cheque or bank draft must accompany each application form. Applicants may note that where payment is made by drafts purchased from NRE/FCNR accounts as the case may be, an Account Debit Certificate from the bank issuing the draft confirming that the draft has been issued by debiting the NRE/ FCNR account should be enclosed with the CAF. In the absence of the above the application shall be considered incomplete and is liable to be rejected. In the case of NR who remit their application money from funds held in FCNR/NRE Accounts, refunds and other disbursements, if any shall be credited to such account details of which should be furnished in the appropriate columns in the CAF. In the case of NRIs who remit their application money through Indian Rupee Drafts from abroad, refunds and other disbursements, if any will be made in US Dollars at the rate of exchange prevailing at such time subject to the permission of RBI. The Company will not be liable for any loss on account of exchange rate fluctuation for converting the Rupee amount into US Dollars or for collection charges charged by the applicants Bankers. Application without repatriation benefits As far as non-residents holding shares on non-repatriation basis is concerned, in addition to the modes specified above, payment may also be made by way of cheque drawn on Non-Resident (Ordinary) Account maintained in Mumbai or Rupee Draft purchased out of NRO Account maintained elsewhere in India but payable at Mumbai. In such cases, the allotment of Equity Shares will be on non-repatriation basis. All cheques/drafts submitted by non-residents should be drawn in favour of the Bankers to the Issue and marked

177

BAJAJ AUTO FINANCE LIMITED

For Application of Equity Shares BAFL - Rights Issue Equity - NR For Application of NCD with warrants BAFL Rights Issue NCD - NR payable at Mumbai and must be crossed A/c Payee only for the amount payable. The CAF duly completed together with the amount payable on application must be deposited with the Collecting Bank indicated on the reverse of the CAF before the close of banking hours on or before the Issue Closing Date. A separate cheque or bank draft must accompany each CAF.

Applicants may note that where payment is made by drafts purchased from NRE/ FCNR/ NRO accounts as the case may be, an Account Debit Certificate from the bank issuing the draft confirming that the draft has been issued by debiting the NRE/ FCNR/ NRO account should be enclosed with the CAF. Otherwise the application shall be considered incomplete and is liable to be rejected. New demat account shall be opened for holders who have had a change in status from resident Indian to NRI. Note: In case where repatriation benefit is available, interest, dividend, sales proceeds derived from the investment in Equity Shares and NCDs with detachable Warrants can be remitted outside India, subject to tax, as applicable according to Income Tax Act, 1961. In case Equity Shares are allotted on non-repatriation basis, the dividend and sale proceeds of the Equity Shares cannot be remitted outside India. The CAF duly completed together with the amount payable on application must be deposited with the Collecting Bank indicated on the reverse of the CAF before the close of banking hours on or before the Issue Closing Date. A separate cheque or bank draft must accompany each CAF. In case of an application received from non-residents, allotment, refunds and other distribution, if any, will be made in accordance with the guidelines/ rules prescribed by RBI as applicable at the time of making such allotment, remittance and subject to necessary approvals.

Payment by Stockinvest In terms of RBI Circular DBOD No. FSC BC 42/24.47.00/2003- 04 dated November 5, 2003, the Stockinvest Scheme has been withdrawn with immediate effect. Hence, payment through Stockinvest would not be accepted in this Issue Disposal of application and application money No acknowledgment will be issued for the application monies received by the Company. However, the Bankers to the Issue / Registrar to the Issue receiving the CAF will acknowledge its receipt by stamping and returning the acknowledgment slip at the bottom of each CAF. The Board reserves its full, unqualified and absolute right to accept or reject any application, in whole or in part, and in either case without assigning any reason thereto. In case an application is rejected in full, the whole of the application money received will be refunded. Wherever an application is rejected in part, the balance of application money, if any, after adjusting any money due on Equity Shares allotted, will be refunded to the applicant within six weeks from the close of the Issue. For further instruction, please read the Composite Application Form (CAF) carefully. Utilisation of Issue Proceeds The Board of Directors declares that: (i) (ii) The funds received against this Issue will be transferred to a separate bank account other than the bank account referred to sub-section (3) of Section 73 of the Act. Details of all monies utilised out of the Issue shall be disclosed under an appropriate separate head 178

BAJAJ AUTO FINANCE LIMITED in the balance sheet of the Company indicating the purpose for which such moneys has been utilised. (iii) Details of all such unutilised moneys out of the Issue, if any, shall be disclosed under an appropriate separate head in the balance sheet of the Company indicating the form in which such unutilised monies have been invested. The funds received against this Issue will be kept in a separate bank account and the Company will not have any access to such funds unless it satisfies the Designated Stock Exchange with suitable documentary evidence that the minimum subscription of 90% of the Issue has been received by the Company. Undertakings by the Company 1. 2. The complaints received in respect of the Issue shall be attended to by the Company expeditiously and satisfactorily. All steps for completion of the necessary formalities for listing and commencement of trading at all Stock exchanges where the securities are to be listed will be taken within seven working days of finalization of basis of allotment. The funds required for dispatch of refund orders/ allotment letters/ certificates by registered post shall be made available to the Registrar to the Issue. The certificates of the securities/ refund orders to the non-resident Indians shall be dispatched within the specified time. No further issue of securities affecting equity capital of the Company shall be made till the securities issued/offered through the Issue are listed or till the application moneys are refunded on account of non-listing, under-subscription etc. The Company accepts full responsibility for the accuracy of information given in this Letter of Offer and confirms that to best of its knowledge and belief, there are no other facts the omission of which makes any statement made in this Letter of Offer misleading and further confirms that it has made all reasonable enquiries to ascertain such facts. All information shall be made available by the Lead Manager and the Issuer to the investors at large and no selective or additional information would be available for a section of the investors in any manner whatsoever including at road shows, presentations, in research or sales reports etc.

3. 4. 5.

6.

7.

Important Please read this Letter of Offer carefully before taking any action. The instructions contained in the accompanying Composite Application Form (CAF) are an integral part of the conditions of this Letter of Offer and must be carefully followed; otherwise the application is liable to be rejected. All enquiries in connection with this Letter of Offer or accompanying CAF and requests for Split Application Forms must be addressed (quoting the Registered Folio Number/ DP and Client ID number, the CAF number and the name of the first Equity Shareholder as mentioned on the CAF and superscribed BAFL - Rights Issue on the envelope) to the Registrar to the Issue at the following address: Intime Spectrum Registry Limited C-13, Pannalal Silk Mills Compound L. B. S. Marg, Bhandup (W) Mumbai 400 078. It is to be specifically noted that this Issue of Equity Shares and NCDs with detachable Warrants is subject to the section entitled Risk Factors beginning on page vii of this Letter of Offer.

The Issue will not be kept open for more than 30 days unless extended, in which case it will be kept open for a maximum of 60 days.

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BAJAJ AUTO FINANCE LIMITED

SECTION VIII : MAIN PROVISIONS OF OUR ARTICLES OF ASSOCIATION

Capitalised terms used in this section have the meaning that has been given to such terms in the Articles of Association. Pursuant to Schedule II of the Companies Act, 1956 and the SEBI Guidelines, the main provisions of the Articles of Association of the Company are set forth below. CAPITAL Share Capital Article 4 provides that (a) (b) The Authorised Share Capital of the Company shall be such amount as from time to time be authorised by the Memorandum. The Company in general meeting may, by Ordinary Resolution from time to time, increase or reduce the capital for the time being of the Company and divide the shares in the Capital into several classes with rights, privileges or conditions as may be determined. The Company may issue preference shares which shall, or at the option of the Company, shall be liable to be redeemed.

Company not to purchase its own shares Article 5 provides that Save as permitted by Section 77 of the Act, the funds of the Company shall not be employed in the purchase of or lent on the security of the shares of the Company and the Company shall not give directly or indirectly any financial assistance, whether by way of loan, guarantee, provide security or otherwise for the purpose of or in connection with any purchase of or subscription for shares in the Company or any company of which it may for the time being, be a subsidiary. Allotment of shares Article 6 provides that Subject to the provisions of these Articles, the shares shall be under the control of the Board who may allot or otherwise dispose of the same to such persons, on such terms and conditions, at such times, either at par, or at a premium and for such consideration as the Board think fit, provided that option or right to call for any shares shall not be given to any person without the sanction of the Company in General Meeting. Limitation of time for issue of Certificate Article 6A provides that The Company, unless prohibited by any provision of law or any order of any court, Tribunal or other authority, shall within three months after the allotment of any of its shares or debentures and with in two months after the application for registration Certificate of transfer of any such shares or debentures, deliver in accordance with the procedure laid down in Section 53 of the Act, the certificate of all shares or debentures allotted or transferred, provided that, the Company may with the necessary approval under the Act, extend any of the periods, within which the certificates of all debentures and debenture stock allotted or transferred shall be delivered, to a further period as may be allowed under the Act, and the Company shall otherwise comply with the requirement of Section 113 and other applicable provisions, if any, of the Act. Redeemable Preference Shares Article 7 provides that Subject to the provisions of these Articles, the Company shall have power to issue preference shares carrying a right to redemption out of profits which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or liable to be redeemed at the option of the Company and the Board may, subject to the provisions of Section 80 of the Act, exercise the power to issue redeemable preference shares. 180

BAJAJ AUTO FINANCE LIMITED Commission and Brokerage Article 8 provides that The Company may exercise the power of paying commission conferred by Section 76 of the Act, and in such case shall comply with the requirements of that Section. Such commission may be satisfied by payment in cash or the allotment of fully or partly paid shares or partly in one way and partly in other. The Company may also on any issue of shares or debentures pay such brokerage as may be lawful. Liability of joint holders of shares Article 9 provides that The joint holders of a share be severally as well as jointly liable for the payment of all calls due in respect of such share. Trust not recognized Article 10 provides that The Company shall not, subject to the provisions of Section 187 C of the Companies Act, 1956, enter on the register of its members or its debenture holders, any notice of any trust. Who may be registered Article 11 provides that Shares may be registered in the name of any person, company or other body corporate. Not more than three persons shall be registered as joint holders of any share. CERTIFICATES Share Certificate Article 12 provides that Every member shall be entitled free of charge to one certificate for all the shares of each class registered in his name or, if the board so approves, to several certificates each for one or more such shares. As to Issue of new Certificate Article 13 provides that If any Certificate of any share or shares be surrendered to the Company for sub- division or consolidation or if any certificate be defaced, torn or old, decrepit, worn out or where cages in the reverse for recording transfers have been duly utilised, then, upon surrender thereof to the Company, the board may order the same to be cancelled and may issue a new certificate in lieu thereof and if any certificate be lost or destroyed, then upon proof thereof to the satisfaction of the Board, and on such indemnity as the Board think fit being given a new certificate in lieu thereof shall be given to the party entitled to the shares to which such lost or destroyed certificate shall relate. Where a new certificate has been issued as aforesaid it shall state on the face of it and against the stub of counterfoil that it is issued in lieu of a share certificate or is a duplicate issued or so replaced and in case of a certificate issued in place of one of which has been lost or destroyed the word duplicate shall be stamped or punched in bold letters across the face thereof. Subdivision less than 100 may be refused Article 14 provides that Notwithstanding anything contained in the Article 13, no request for sub-division of share certificates or letters of allotment into denomination of less than 100 (one hundred) Equity Shares shall be accepted, unless otherwise resolved by the Board of Directors, except when such sub-division, is required to be made to comply with a statutory order or an order of a competent Court of Law.

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BAJAJ AUTO FINANCE LIMITED Stamp Duty on Share Certificates Article 14A provides that Notwithstanding anything contained in this Articles, the Board of Directors, may at their discretion, charge and recover the Stamp Duty payable on share certificates issued in replacement of those that are torn, defaced, lost or destroyed or issued on splitting or consolidation of share certificates into denominations other than market- able lot and such payment should be made by the Shareholders receiving the certificate prior to the issue of share certificate. CALLS Calls Article 15 provides that The Board may, from time to time subject to the terms on which any shares may have been issued and subject to the provisions of Section 91 of the Act, make such call as the Board thinks fit, upon the members in respect of all moneys unpaid on the shares held by them respectively and not by the conditions of allotment thereof made payable at fixed times, and each member shall pay the amount of every call so made on him to the persons and at the time and places appointed by the Board. A call may be payable by installments and shall be deemed to have been made when the resolution of the Board authorising such call was passed. Restriction on power to make calls and notice Article 16 provides that No call shall be made payable within one month after the last preceding call was payable. Not less than fourteen days notice of any call shall be given specifying the time and place of payment and to whom such call shall be paid. Interest on call or instalment Article 17 provides that (1) If the sum payable in respect of any call or instalment be not paid on or before the day appointed for payment thereof, the holders for the time being in respect of the shares for which the call shall have been made or the instalment shall be due, shall pay interest for the same at the rate of 12 per cent per annum from the day appointed for the payment thereof to the time of the actual payment or at such rate as the Board may determine. The Board shall beat liberty to waive payment of any such interest either wholly or in part.

(2)

Amount payable at fixed times or payable in instalments as calls Article 18 provides that If by the terms of issue of any share or otherwise any amount is made payable upon allotment or at any fixed times or by instalments as fixed times, whether on account of the amount of the shares or by way of premium every such amount or instalment shall be payable as if it were a call duly made by the Board and, of which due notice had been given and all the provision herein contained in respect of call shall relate to such amount or instalment accordingly. Evidence in action by Company against shareholders Article 19 provides that On the trial or hearing of any action or suit brought by the Company against any shareholders or his representatives to recover any debt or money claimed to be due to the Company in respect of his shares, it shall be sufficient to prove that the name of the defendant is or was when the claim arose, on the Register as a holder or one of the holders of the number of shares in respect of which such claim, is made, and that the amount claimed is not entered as paid in the books of the Company and it shall not be necessary to prove 182

BAJAJ AUTO FINANCE LIMITED the appointment of the Board who made any call, nor that a quorum was present at the Board meeting at which any call was made nor that the meeting at which any call was made was duly convened or constituted, nor any other matter whatsoever but the proof of the matters aforesaid shall be conclusive evidence of the debt. Payment of calls in advance Article 20 provides that The Board may, if it thinks fit, receive from any member willing to advance the same, all or any part of the money due upon the share held by him, beyond sums actually called for and upon the money so paid or satisfied in advance, or so much thereof as from time to time exceeds the amount of the calls then made upon the share in respect of which advance has been made, the Company may pay interest at such rate to the members as the members paying such sum as advance and the Board agree upon. Money so paid in excess of the amount of calls shall not rank for dividends or confer a right to participate in profits. The Board may at any rime repay the amount so advance upon giving to such member not less three months notice in writing. Revocation of call Article 21 provides that A call may be revoked or postponed at the discretion of the Board. FORFEITURE AND LIEN If call or instalment not paid, notice may be given Article 22 provides that If any member fails to pay any call or instalment of a call on or before the day appointed for payment of the same, the Board may, at any time thereafter during such time as theca or instalment remains unpaid serve a notice on such member requiring him to pay the same, together with any interest that may have accrued and all expenses that may have been incurred by the Company by reason of such non-payment. Form of Notice Article 23 provides that The notice shall name a day (not being less than fourteen days from the date of the notice) and a place or places on and at which such call or instalment and such interest and expenses as aforesaid are to be paid. The Notice shall also state that in the event of non-payment at or before the time, and at the place appointed, the shares in respect of which such call was made or instalment payable, will be liable to be forfeited. If notice not complied with, shares may be forfeited Article 24 provides that If the requirements of any such notice as aforesaid be not complied with, any shares in respect of which such notice has been given, may, at any time thereafter, before payment of all calls or instalment, interest and expenses, due in respect thereof, be forfeited by a resolution of the Board to that effect. Such forfeiture shall include all dividends in respect of the forfeited shares and not actually paid before the forfeiture. Notice after forfeiture Article 25 provides that When any share shall have been so forfeited notice of the resolution shall be given to the member in whose name it stood immediately prior to the forfeiture and an entry of the forfeiture with the date thereof, shall forthwith be made in the register, but no forfeiture shall be, in any manner invalidated by any commission or neglect to give such notice or to make such entry as aforesaid.

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BAJAJ AUTO FINANCE LIMITED Forfeited shares to become property of the Company Article 26 provides that Any share so forfeited shall be deemed to be the property of the Company, and the Board may sell, re-allot or otherwise dispose of the same in such manner as it thinks fit. Power to annul forfeiture Article 27 provides that The Board may, at any time before any share so forfeited shall have been sold, re- allotted or disposed of, annul the forfeiture thereof upon such conditions as it thinks fit. Liability on Forfeiture Article 28 provides that A person whose share has been forfeited, shall cease to be a member in respectofd1e share, but shall, notwithstanding, remain liable to pay, to the Company, all calls or instalments, interest and expenses, owing upon or in respect of such share at the time of forfeiture, together with interest thereon, from the time of forfeiture until payment, at 12 percent per annum, and the Board may enforce the payment thereof or any part thereof without any deduction or allowance for the value of the shares at the time of forfeiture, but shall not be under any obligation to do so. Evidence of forfeiture Article 29 provides that A duly verified declaration in writing that the declarant is a Director, Manager or Secretary of the Company and that certain shares in the Company have been duly forfeited on a date stated in the declaration shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the shares and such declaration and the receipt of the Company for the consideration, if any, given for the shares on the sale or disposition thereof shall constitute a good title to such shares and the person to whom any such share is sold shall be registered as the holder of such share and shall not be bound to see to the application of the purchase money, nor shall his title to such share be affected by any irregularity or invalidity in the proceedings in reference to such forfeiture, sale or disposition. Companys lien on shares Article 30 provides that The Company shall have a first and paramount lien upon every share, not being fully paid-up, registered in the name of each member (whether solely or jointly with others) and upon the proceeds of sale thereof, for moneys called or payable at fixed time in respect to such share, whether the time for the payment thereof shall have actually arrived or not and no equitable interest in any share shall be created except upon the footing and condition that Article 31 hereof is to have full effect. Such lien shall extend to all dividends from time to time declared in respect of such share. Unless otherwise agreed, the registration of a transfer of a share shall operate as a waiver of the Companys lien, if any, on such share. As to enforcing lien by sale Article 31 provides that For the purpose of enforcing such lien the Board may sell the share, subject thereof in such manner as it thinks fit, but no sale shall be made until such time for payment as aforesaid shall have arrived and until notice in writing of the intention to sell shall have been served on such member, his executors or administrator or his committee, CURATOR BONIS or other legal representative as the case may be and default shall have been made by him or them in the payment of the moneys called or payable at a fixed time in respect of such heir, for seven days after the date of such notice.

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BAJAJ AUTO FINANCE LIMITED Application of proceeds of sale Article 32 provides that The net proceeds of the sale shall be received by the Company and applied in or towards payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the share before the sale) be paid to the person entitled to the share at the date of sale. Validity of sales in exercise of lien and after forfeiture Article 33 provides that Upon any sale after forfeiture or for enforcing a lien in purported exercise of the power herein before given, the Board may appoint some person to execute an instrument or transfer of the share sold and cause the purchasers name to be entered in the Register in respect of the shares sold and the purchaser shall not be bound to see to the regularity of the proceedings, nor to the application of the purchase money and after his name has been entered in the Register of such share, the validity of the sale shall not be impeached by any person, and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively. Board may issue new certificates Article 34 provides that Where any share, under the powers in that behalf herein contained, is sold by the Board and the certificate in respect thereof has not been delivered to the Company by the former holders of such share, the Board may issue new certificates for such share distinguishing it in such manner as it may think fit from the certificate not so delivered. TRANSFER AND TRANSMISSION Execution of transfer, etc. Article 35 provides that No transfer shall be registered unless an instrument of transfer in accordance with Section 108 of the Act, duly stamped and executed by or on behalf of the transferor or/ and by or on behalf of the transferee has been delivered to the Company together with the certificate or, if no such certificate is in existence the letter of allotment of the share each signature to such transfer shall be duly attested by the signature of one credible witness who shall add his address. Power of Board to refuse transfer Article 41 provides that Directors may, at their own, absolute and uncontrolled discretion decline to register or acknowledge any transfer of shares and the right of refusal shall not be affected by the circumstances that the proposed transfer, is in favour of a member of the Company. Provided that registration of a transfer shall not be refused, on the ground of the transferor being either alone or jointly with any other person or persons indebted to the Company on any account whatsoever except where the Company has a lien on shares. Application for transfer Article 42 provides that Application for the registration of the transfer of a share may be made by either the transferor or the transferee provided that where such application is made by the transferor, no registration shall in the case of a partly paid share. be effected unless the Company gives notice of the application to the transferee in the manner prescribed by Section 110 of the Act and subject to the provisions of these Articles. The Company shall unless objection is made by the transferee within two weeks from the date of receipt of the notice enter in the Register the name of the transferee in the same manner and subject to the same conditions as if the application for registration of the transfer was made by the transferee. 185

BAJAJ AUTO FINANCE LIMITED Transfer instrument to be left at office when to be retained Article 43 provides that Every instrument of transfer shall be left for registration, accompanied by the certificate of the shares to be transferred or, if no such certificate is in existence, the letter of allotment of the share and such other evidence as the Board may require to prove title of the transferor or his right to transfer the share. Every instrument of transfer, which shall be registered shall be retained by the Company but any instrument of transfer which the Board may refuse to register, shall be returned to the person depositing the same. Notice of refusal to register transfer Article 44 provides that If the Board refuses to register the transfer, or the transmission by operation of law of the right to, any shares, the Company shall, within two months from the date on which the instrument of transfer or the intimation of such transmission, as the case may be, was lodged with the Company, send to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be, notice of the refusal. No registration fee Article 45 provides that No fee will be charged for the registration of any transfer, grant of probate, grant of letter of administration, certificate of death or marriage, power of attorney or other instrument. Transmission of registered shares, as to survivorship Article 46 provides that The executor or administrator of a deceased member (Not being one of several joint holders) shall be the only person recognised by the Company as having any title to the shares registered in the name of such member and, in case of death of anyone or more of the joint holders of any registered shares, the survivor shall be the only person recognised by the Company as having any title to or interest in such share, but nothing herein contained shall be taken to release the estate of deceased joint holder from any liability on the share held by him jointly with any other person. Before recognising any executor or administrator the Board may require him to obtain a Grant of Probate or letter of Administration or other legal representations, as the case may be, from a competent court in India. Provided nevertheless, that in any case where the Board in his absolute discretion thinks fit it shall be lawful for the Board to dispense with the production of probate or of administration or such other legal representation upon such terms as to indemnity or otherwise as the Board, in its absolute discretion, may consider adequate. As to transfer by insane, minor, deceased or bankrupt members Article 47 provides that Any committee or guardian of a lunatic or minor member or any persons becoming entitled to or to transfer a share in consequency of the death or bankruptcy of any member, upon production of such evidence that he sustains the character in respect of which he proposes to act under this Article or his title as the Board thinks sufficient, may, with the consent of the Board (which the Board shall not be bound to give) may be registered as a member in respect of such share, or may, subject to the regulation as to transfer hereinbefore contained, transfer such share. This Article is hereinafter referred to as The Transmission Article. Election under the Transmission Article Article 48 provides that (1) If the person on becoming entitled under the Transmission Article shall elect to be registered as holder of the share himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects.

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BAJAJ AUTO FINANCE LIMITED (2) (3) If the person aforesaid shall elect to transfer the share, he shall testify his election by executing an instrument of transfer of share. All the limitations, restrictions and provisions of the Articles, relating to the right to transfer of a share shall be applicable to any such notice or transfer as aforesaid as if the death, lunacy, bankruptcy or insolvency of the member has not occurred and the notice of transfer were signed by the member.

Right of persons entitled to shares under the Transmission Article Article 49 provides that A person so becoming entitled under the Transmission Article to a share by reason of the death, lunacy, bankruptcy or insolvency of the holder shall, subject to the provisions of Section 206 of the Act, be entitled to the same dividends and other advantages as he would be entitled to, if he were the registered holder of the share. Provided that the Board may, at any time, by giving notice require any such person, to elect either to be registered himself or to transfer the shares, and if the notice is not complied with within ninety days, the Board may thereafter withhold payment of all dividends, bonuses or other money payable in respect of the shares, until the requirements of the notice have been complied with. DEMATERIALISATION OF SECURITIES Article 49A provides that (1) For the purposes of this Article, unless the context otherwise requires, Beneficial Owner means a person whose name is recorded as such with a Depository; SEBI means the Securities and Exchange Board of India; Depositories Act means the Depositories Act, 1996, and any statutory modification or re-enactment thereof for the time being in force; Depository means a Depository as defined in the Depositories Act; Security means such security as may be specified by SEBI from time to time. (2) (3) Notwithstanding anything contained in these Articles, the Company shall be entitled to dematerialize its securities and to offer securities in the dematerialized form, pursuant to the Depositories Act. Every person subscribing to securities offered by the Company shall have the option to receive security certificates or to hold securities with a Depository. Such a person who is the Beneficial Owner of the securities can at any time opt out of a depository in respect of any security, in the manner provided in the Depositories Act, and the Company shall in the manner and within the time prescribed, issue to the Beneficial Owner the required certificates of securities. All securities held by a Depository shall be dematerialized and shall be in a fungible form. Nothing contained in Sections 153, 153A, 153B, 187B, 187C and 372A of the Act shall not apply to a Depository in respect of the securities held by it on behalf of the Beneficial Owner. (5) (a) Notwithstanding anything to the contrary contained in the Act or these Articles, a Depository shall be deemed to be the registered owner for the purpose of effecting transfer of ownership on behalf of the Beneficial Owner. Save as otherwise provided in (a) above, the Depository as a registered owner of the securities shall not have any voting rights or any other rights in respect of the securities held by it. Every person holding shares of any class in the capital of the Company and whose name is entered as Beneficial Owner in the records of the Depository shall be deemed to be a member of the Company. The Beneficial Owner shall be entitled to all the rights and benefits and be subject to all the liabilities in respect of the securities which are held by a Depository.

(4)

(b) (c)

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BAJAJ AUTO FINANCE LIMITED (6) Nothing contained in Section 108 of the Act or these Articles shall apply to a transfer of securities effected by a transferor and transferee both of whom are entered as beneficial owners in the records of the depository. Nothing contained in the Act or these Articles regarding the necessity of distinctive numbers for securities issued by the Company shall apply to securities held with a Depository. The Register and Index of Beneficial Owners maintained by a Depository under the Depositories Act, shall be deemed to be the Register and Index of Members and Security holders for the purposes of these Articles. Notwithstanding anything in the Act or these Articles to the contrary, where securities are held in a Depository, the records of the beneficial ownership may be served by such Depository on the Company by means of electronic mode or by delivery of floppies or discs.

(7) (8)

(9)

Notwithstanding the provisions of Article 46, every holder of shares in, or debentures of the Company shall be entitled to nominate in the prescribed manner, a person to whom his shares in or debentures of the Company shall vest in the event of his death, in accordance with the provisions of the Act. INCREASE AND REDUCTION OF CAPITAL Power to increase capital Article 50 provides that The Company in general meeting may from time to time increase its capital by the creation of new shares of such amount as may be deemed expedient. On what condition new shares may be issued Article 51 provides that Subject to any special rights or privileges for the time being attached to any shares in the capital of the Company then issued, the new shares may be issued upon such terms and conditions, and with such rights and privileges attached thereto as the general meeting resolving upon the creation thereof shall direct, and, if no direction has been given, as the Board shall determine and in particular such shares may be issued with a preferential or qualified right to dividends and in the distribution of assets of the Company. How far new shares to rank with existing shares Article 52 provides that Except so far as otherwise provided by the conditions of issue or by these presents, any capital raised by the creation of new shares shall be considered part of the then existing capital of the Company and shall be subject to the provisions herein contained with reference to the payment of dividends, calls and instalments, transfer and transmission, forfeiture, lien, surrender and otherwise. Reduction of capital etc Article 53 provides that The Company may from time to time by Special Resolution, reduce its capital and any Capital Redemption Reserve Account or Share Premium Account in any manner and with and subject to any incident authorised and consent required by law. ALTERATION OF CAPITAL Power to sub-divide and consolidate shares Article 54 provides that The Company in general meeting may from time to time:

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BAJAJ AUTO FINANCE LIMITED (a) (b) Consolidate and divide all or any of its share capital into shares of larger amount than its existing shares. Sub-divide its existing shares or any of them into shares of smaller amount is fixed by Memorandum so however, that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived. Cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. Convert all or any of its fully paid up shares into stock and reconvert that stock into fully paid up shares of any denomination.

(c)

(d)

Dividend on Sub-divided or consolidated shares Article 55 provides that The resolution whereby any share is sub divided or consolidated may determine that, as between the holders of the shares resulting from such sub division, one or more of such shares shall have some preference or special advantage as regards dividend, capital, voting or otherwise over or as compared with the others subject, nevertheless, to the provisions of Sections 85, 87, 88 and 106 of the Act. Surrender of shares Article 56 provides that Subject to the provisions of Section 100 and 104 of the Act, the Board may accept from any member, the surrender, on such terms and conditions as shall be agreed of all or any of his shares. MODIFICATION OF RIGHTS Power to modify rights Article 57 provides that If at any time the share capital is divided into different classes of shares the rights attached to any class(unless otherwise provided by the terms of issue of the shares of that class) may whether or not the Company is being wound up be varied with the consent in writing of the holders of three-fourths of the issued share of that class, or with the sanction of Special Resolution passed at a separate General Meeting of the holders of the shares of that class. To every such separate General Meeting the provisions of this Article relating to general meeting shall apply, but so that the necessary quorum shall be two persons at least holding or representing by proxy, one fifth of the issued shares of the class, but so that if at any adjourned meeting of such holder a quorum as above defined is not present, those members who are present shall be a quorum and that any holders of share of the class present in person or by proxy may demand poll and on a poll, he shall have one vote for each share of the class of which he is the holder. This Article is not by implication to curtail the power of modification which the Company would have if these Articles were omitted. The Company shall comply with the provisions of Section 192 of the Act as to forwarding a copy of any such agreement or resolution to the Registrar. BORROWINGS Power to borrow Article 58 provides that The Board may from time to time at its discretion subject to the limitation, if any, put by any statute for the time being in force, raise or borrow, either from the Directors or from elsewhere and secure the payment or any sum or sums of money for the purposes of the Company.

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BAJAJ AUTO FINANCE LIMITED Power to secure repayment Article 59 provides that The Board may raise or secure the repayment of such sum or sums in such manner and upon such terms and conditions in all respects as it thinks fit and in particular, by the issue of bonds, perpetual or redeemable debenture or any mortgage, or other security on the undertaking of the whole or any part of the property of the Company (both present and future) including its uncalled capital for the time being. Issue at discounts etc. or with premium Article 60 provides that Any debenture, bonds or other securities may be issued at a discount, premium or otherwise and with any special privileges, as to redemption, surrender, drawings, allotment of shares, appointment of Directors and otherwise, debentures, debenture- stock, bonds and other securities may be made assignable free from any equities between the Company and the person to whom the same may be issued. Provided that debentures, debentures-stock, bonds or other securities with a right to allotment of, or conversion into shares shall not be issued except with the sanction of the Company in General Meeting. Instrument of transfer Article 61 provides that Save as provided in Section 108 of the Act, no transfer of debentures shall be registered unless a proper instrument of transfer executed by transferor and transferee has been delivered to the Company together with the certificate of the debentures. Notice of refusal to register transfer Article 62 provides that If the Board refuses to register the transfer of any debentures, the Company shall within two months from the date on which the instrument of transfer was lodged with the Company, send to the transferee and to the transferor notice of the refusal. GENERAL MEETINGS Notice Article 63 provides that A General Meeting of the Company may be called by giving 21 days notice in writing and Section 171 of the Act shall apply subject to said modifications. Shorter Notice Article 64 provides that A General Meeting may be called after giving shorter Notice of less than 21 days if the consent is accorded thereto: (1) (2) In the case of an Annual General Meeting by all the; members entitle to vote thereto, and In the cases of any other Meeting by members of the Company holding not less than 95% of such part of the paid up share capital of the Company as gives them a right to vote at this meeting

Annual General Meeting Article 65 provides that Subject to the provisions of Section 166 of the Companies Act, 1956, the Board shall convene at such times and places as may be determined by the Board, Annual General Meeting of the shareholders of the Company.

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BAJAJ AUTO FINANCE LIMITED When other General Meeting to be called Article 66 provides that The Board may whenever it thinks fit call a General Meeting and it shall, on the requisition of the Members in accordance with Section 169 of the Act, proceed to call on an Extra-Ordinary General Meeting. The requisitionists may in default of the Board convening the same, convene the Extra-Ordinary General Meeting as provided by Section 169 of the Act. PROCEEDINGS AT GENERAL MEETING Quorum at General Meeting Article 67(a) provides that Five members entitled to vote and present in person shall be quorum for a General Meeting and no business shall be transacted at any General Meeting unless the quorum requisite be present at the commencement of the business. When if quorum not present, meeting to be dissolved and when to be adjourned Article 67(b) provides that If within half an hour from the time appointed for the meeting a quorum be not present, the meeting if convened upon such requisitions as aforesaid, shall be dissolved, but in any other case it shall stand adjourned to the same day in the next week at the same time and place or to such other day and at such time and place as the Board may, by notice, appoint and if at such adjourned meeting a quorum be not present within half an hour from the time appointed for holding the meeting those members who are present and not being less than two, shall be a quorum and may transact the business for which the meeting was called. Resolution to be passed by Company in General Meeting Article 68 provides that Any act, or resolution which under the provisions of these Articles or the Act, is permitted or required to be passed by the Company in General Meeting, shall be sufficiently so done or passed if effected by an Ordinary Resolution as defined in Section 189 (1) of the Act, unless either the Act or the Articles specifically require such act to be done or resolution passed by a Special Resolution as defined in Section 189 (2) of the Act. Chairman of meeting Article 69 provides that The Chairman of the Board shall be entitled to take the chair at every General Meeting. If there be no such Chairman or if at any meeting he shall not be present within fifteen minutes after the time appointed for holding such meeting, or is unwilling to act, the members present shall choose another Director as Chairman and if no Director be present or if all the Directors present decline to take the Chair, then the members present shall on a show of hands or on a poll, if properly demanded elect one of the members, being a member entitled to vote, to be Chairman. How to vote Article 70 provides that Every question submitted to a meeting shall be decided in the first instance by a show of hands, and in the case of equality of votes, both on a show of hands and on poll, the Chairman of the meeting shall have a casting vote on which he is entitled as a member. Adjournment of Meeting Article 71 provides that (i) The Chairman of a general meeting may adjourn the same from time to time and from place to place, but no business shall be transacted at an adjourned meeting other than business left unfinished at the meeting from which the adjournment took place. 191

BAJAJ AUTO FINANCE LIMITED (ii) When a meeting is adjourned it shall not be necessary to give any notice of an adjournment or the business to be transacted at an adjourned meeting.

One vote each Member on show of hands Article 72 provides that (i) Save as hereinafter provided, on a show of hands, every member present in person and being a holder of Equity Shares shall have one Vote and every person present either as a General Proxy on behalf of a holder of Equity Shares, if he is not entitled to vote on his own right or, as a duly authorised representative of body corporate, being a holder of Equity Shares, shall have one vote. Save as hereinafter provided on a poll the voting rights of a holder of Equity Shares shall be as specified in Section 87 of the Act.

(ii)

(iii) The holder of preference shares shall not be entitled to vote at general meeting of the Company except as provided for in Section 87 of the Act. Provided that no body corporate shall vote by proxy so long as resolution of its Board of Directors under the provisions of Section 187 of the Act is in force and the representative named in such resolution is present at the general meeting at which the vote by proxy is tendered. Procedure where a company or body corporate is a member of the Company Article 73 provides that Where a body corporate (hereinafter called member company) is a member of the Company a person duly appointed by resolution in accordance with the provisions of Section 187 of the Act, to represent such member company at a meeting of the Company shall not by reason of such appointment, be deemed to be proxy and the lodging with the Company at the office or production at the meeting of a copy of such resolution duly signed by one Director of such member company and certified by him as being a true copy of the resolution shall, on production at the meeting, be accepted by the Company as sufficient evidence of the validity of his appointment. Such a person shall be entitled to exercise the same rights and powers, including the right to vote by proxy on behalf of the member company which he represents as that member company could exercise if it were an individual member. Votes in respect of deceased, insane and insolvent members Article 74 provides that Any person entitled under the- Transmission Article to transfer any shares may vote at any general meeting in respect thereof in the same manner as if he was the registered holder of such shares. Provided that forty eight hours. at least before the time of holding the meeting or adjourned meeting as the case may be. at which he proposes to vote. he shall satisfy the Board of his right to transfer such share unless the Board shall have previously admitted his right to vote at such meeting in respect thereof if any member be a lunatic, idiot or NON COMPOSMENTIS he may vote whether on a show of hands or at a poll by his committee CURATOR BONIS or other legal curator and such last mentioned person may give the votes by proxy. Joint-holders Article 75 provides that Where there are joint registered holders of any share anyone of such persons may vote at any meeting either personally or by proxy in respect of such share as if he was solely entitled thereto, and if more than one of such joint holders be present at any meeting either personally or by Proxy, then one of the said persons so present whose name stands first on the Register in respect of such shares, alone shall be entitled to vote in respect thereof, several executors or administrators of a deceased members in whose name any share is registered shall for the purpose of this Article be deemed joint holders thereof.

192

BAJAJ AUTO FINANCE LIMITED Demand for Poll Article 76 provides that (a) Before or on the declaration of the result of the voting on any resolution on a show of hands, a poll may be ordered to be taken by the Chairman of the meeting of his own motion, and shall be ordered to be taken by him on a demand made in that behalf by any member or members present in person or by proxy and holding shares in the company, which confer a power to vote on the resolution not being less than one tenth of the total voting power in respect of the resolution or on which an aggregate sum of not less than fifty thousand rupees has been paid up. The demand for a poll may be withdrawn at any time by a person or persons who made the demand. On a poll votes may be given either personally or by proxy, and a person entitled to vote more than one need not use all his votes or cast all votes he uses in the same way.

(b)

Appointment of proxy to be in writing Article 77 provides that The instrument appointing a proxy shall be in writing under the hand of the appointed or of his Attorney duly authorised in writing or if such appointer is a body corporate under its Common Seal or the hand of its officer or Attorney duly authorised. A proxy who is appointed for a specified meeting shall be called a Special Proxy. Any other proxy shall be called General Proxy. A person may be appointed a proxy though he is not a member of the Company and every notice convening a meeting of the Company shall state this and that a member entitled to attend and vote at this meeting is entitled to appoint a proxy to attend and vote instead of him. Deposit of instrument of proxy Article 78 provides that The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority shall be deposited at the office not less than forty-eighty hours before the time of holding the meeting at which the person named in the instrument of proxy shall vote and in default the instrument of proxy shall not be treated as valid. When vote by proxy valid though authority revoked Article 79 provides that A vote given in accordance with the terms of instrument appointing a proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the instrument, or transfer of the share in respect of which the vote is given provided no intimation in writing of the death, insanity, revocation or transfer of the share shall have been received by the Company at the office before the vote is given provided nevertheless that the Chairman of any meeting shall be entitled to require such evidence as he may in his discretion, think fit, of the due execution of an instrument of proxy and that the same has not been revoked. Restriction on voting Article 80 provides that No member shall be entitled to exercise any voting rights either personally or by proxy at any meeting of the company in respect of any share registered in his name on which any calls or other sums presently payable by him have not been paid or in regard to which the Company has, and has exercised any right of lien. Admission or rejection of vote Article 81 provides that Any objection as to the admission or rejection of a vote, either, on a show of hands. or, on a poll made in due time shall be referred to the Chairman who shall forthwith determine the same, and such determination made in good faith shall be final and conclusive. 193

BAJAJ AUTO FINANCE LIMITED No objection shall be raised to the qualification of any voter except at the meeting or adjourned meeting at which the vote objected to is given or tendered and every vote not disallowed at such meeting shall be valid for all purposes. Inspection of Minutes Book of General Meeting Article 81A provides that The book containing the aforesaid minutes shall be kept at the Registered Office and be open, during business hours, to the inspection of any member without charge, subject to such reasonable restrictions as the Company may, by these articles or in general meeting, impose in accordance with Section 196 of the Act. Any member shall be entitled to be furnished within seven days after he has made a request in that behalf to the Company with a copy of the minutes on payment of such sum as may be prescribed under Section 196 of the Act for every one hundred words or fractional part thereof required to be copied. DIRECTORS Number of Directors Article 82 provides that Subject to the provisions of Section 255 and Section 256 of the Act. unless otherwise determined by the Company in General Meeting and subject to Section 252 the number of Directors shall be not less than 3 nor more than 12. Change in No. of Directors Article 83 provides that The Company in general meeting may from time to time increase or reduce the number of Directors within the limits fixed by Article 82. First Directors Article 84 provides that The persons hereinafter named are the First Directors of the Company 1. 2. 3. 4. 5. Mr. RAHUL BAJAJ Mr. RANJAN SANGHI Mr. BHARAT SANGHVI Mr. RAJENDRA LAKHOTIA Mr. DIPAK PODDAR

Power of Board to add to its numbers Article 85(a) provides that The Board shall have power, at any time and from time to time to appoint any person as a Director as an addition to the Board but so that the total number of Directors shall not at any time exceed the maximum number fixed by these Articles. Any Director so appointed shall hold office only until the next Annual General Meeting of the Company and shall then be eligible for re-election. Casual vacancy Article 85(b) provides that Any casual vacancy occurring in the office of a Director whose period of office is liable to determination by retirement by rotation may be filled up by the Directors but any person so appointed shall hold office only upto the date which the Directors in whose place he is appointed would have held office if the vacancy had not occurred. Nominee Director Article 86 provides that 194

BAJAJ AUTO FINANCE LIMITED (a) Subject to the provisions of the Act, and notwithstanding anything to the contrary contained in these Articles, so long as any moneys remain owing by the Company to any Financing Company or Board or Financial Corporation or Credit Corporation or Bank or any Insurance Corporation (each such Finance Company or Body or Financial Corporation, Credit Corporation or Bank or any Insurance Corporation or Bank or any Insurance Corporation is hereinafter referred to as Financial Institution) out of any loans granted by the Financial Institution to the Company or so long as the Financial Institution continues to hold debentures in the Company by direct subscription or private placement, or so long as the financial institution hold shares in the Company as a result of underwriting or direct subscription or so long as any liability of the Company arising out of any guarantee furnished by the Financial Institution on behalf of the Company remains outstanding, the Financial Institution shall have a right to appoint from time to time, its nominee/s as a Director or Directors (which Director or Directors is/ are hereinafter referred to as Nominee Director/s) on the Board of the Company and to remove from such office of the Nominee and to remove from such office of the Nominee Director/s so appointed, and at the time of such removal and also in the case of death or resignation of the Nominee Director/s so appointed at any time appoint any other person/persons in his/their places and also fill any vacancy which may occur as a result of such Director/s ceasing to hold office for any reasons whatever, such appointment or removal shall be made in writing on behalf of the Financial Institution appointing such Nominee Director/s and shall be delivered to the Company at its Registered Office. The Nominee Director/s shall not be required to hold any qualification shares in the Company to qualify him/them for the office of a Director/s nor shall he/they be liable to retirement by rotation. The Board of Directors of the Company shall have no power to remove from office the Nominee Director/s so appointed. Subject to the aforesaid, the Nominee Director/s shall be entitled to same rights and privileges and be subject to the same obligations as any other Director of the Company. The Nominee Director/s so appointed shall hold the office only so long as any moneys remain owing by the Company to the Financial Institution or so long as the Financial Institution holds Debentures in the Company as a result of direct subscription or private placement or so long as the Financial Institution holds shares in the Company as a result of underwriting or direct subscription or the liability of the Company arising out of any guarantee, is outstanding and the Nominee Director/s so appointed in exercise of the said power shall ipso facto vacate such office, immediately the moneys owing by the Company to the Financial Institution is paid off or on the. financial institution ceasing to hold debentures/ shares in the Company or on the satisfaction of the liability of the Company arising out of any Guarantee furnished by the Financial Institution. The Nominee Director/s appointed under this Article shall be entitled to receive all notices of and attend all General Meetings. Board Meetings and the Meeting of the Committee of which the Nominee Director/ s is/are member/s as also the minutes of such meetings. The Financial Institution shall also be entitled to receive all such notices and minutes. The Company shall pay to the Nominee Director/s sitting fees and expenses to which other Directors of the Company are entitled. Any expenses that may be incurred by the Financial Institution or such Nominee Director/s in connection with his/their appointment of Directorship shall be paid by the Company. The Financial Institution shall be entitled to depute observer to attend the meetings of the Board or any other Committee constituted by the Board.

(b)

(c)

(d)

(e)

Qualification Shares Article 87 provides that The Directors are not required to hold any qualification shares. Directors remuneration and expenses Article 88 provides that Unless otherwise determined by the Company in General Meeting each Director shall be entitled to receive out of the funds of the Company for his service in attending meetings of the Board or a Committee of the 195

BAJAJ AUTO FINANCE LIMITED Board a fee not exceeding Rs. 500/- (Rupees five hundred only) or such higher sum as may be permissible under the law, per meeting of the Board or a Committee of the Board attended by him as may be decided by the Board of Directors from time to time. All other remuneration, if any, payable by the Company to each Director, whether in respect of his services as a Managing Director or a Director in the whole or part time employment of the Company, shall be determined in accordance with and subject to the provisions of these Articles, and of the Act. The Directors shall be entitled to be paid their reasonable travelling and hotel and other expenses incurred in consequence of their attending Board and Committee meeting or otherwise incurred in the execution of their duties as Directors. Remuneration for extra services Article 89 provides that If any Director, being willing, shall be upon to perform extra service or to make any special exertions in going or residing away from his usual place of residence for any of the purposes of the Company or in giving special attention to the business of the Company or as a member of a Committee of the Board then the Board may remunerate the Director so doing either by a fixed sum or by a percentage of profits or otherwise and such remuneration may be either in addition to or in substitution for any other remuneration to which the Director may be entitled. Directors not to hold office or place of Profit Article 89A provides that Any appointment to any office or place of profit under the Company, which attracts the provisions of section 314 of the Act, shall be made in due conformity with the said provisions. Board may act notwithstanding vacancy Article 90 provides that The continuing Directors may act notwithstanding any vacancy in their body, but so that if the number fails below the minimum above fixed, the Board shall not, except for purpose of filling vacancies, act so long as the number is below the minimum. Notice of Candidature for office of Director Article 91C provides that (1) Subject to the provisions of the Act and these Articles, any person who is not a retiring Director shall be eligible for appointment to the office of Director at any General Meeting if he or some member intending to propose him, has, at least fourteen clear days before the meeting left at the office of the Company a notice in writing under his hand signifying his candidature for the office of Director or the intention of such member to propose him as a candidate for that office, as the case may be along with a deposit of five hundred rupees which shall be refunded to such person or as the case may be, to such member, if the person succeeds in getting elected as a Director. The Company shall duly comply with the provisions of Section 257 of the Act for informing its members of the candidature of the Director concerned. Every person (other than a Director retiring by rotation or otherwise or a person who has left at the office of the Company, a notice under Section 257 signifying his candidature for the office of a Director) proposed as a candidate for the office of a Director shall sign and file with the Company, his consent in writing to act as a Director, if appointed. A person other than: a) b) A Director re-appointed after retirement by rotation or immediately on the expiry of his term of office, or an Additional or Alternate Director or a person filling a causal vacancy in the office of the Director under Section 262 of the Act, appointed as a Director or re- appointed as an Additional or Alternate Director, immediately on the expiry of his term of office. 196

(2)

(3)

BAJAJ AUTO FINANCE LIMITED Shall not act as a Director of the Company unless he has, within thirty days of his reappointment signed and filed with the Registrar of Companies his consent in writing to act as such Director. ALTERNATE DIRECTOR Power to appoint alternate director Article 92 provides that The Board may in accordance with and subject to the provisions of Section 313 of the Act, appoint any person to act as Alternate Director for a Director during the latters. absence for a period of not less than three months from the State in which the meetings of the Board are ordinarily held. PROCEEDINGS AT BOARD MEETINGS Meeting of Directors Article 93 provides that The Board shall meet together at least once in every three months for the dispatch of business and may adjourn. and otherwise regulate its meeting and proceedings as it thinks fit. At least our such meetings shall be held in a year. Notice in writing of every meeting of the Board shall be given to every Director for the time being in India. and at his usual address in India to every other Director. Convene a Board Meeting Article 94 provides that A Director may, at any time, and the Manager or Secretary shall upon the request of a Director made at any time, convene a meeting of the Board. Chairman Article 95 provides that The Board shall appoint a Chairman of its meeting and determine the period for which he is to hold office. If no such Chairman is appointed or if at any meeting of the Board the Chairman be not present within five minutes, after the time appointed for holding the same, the Directors present shall choose someone of their number to be Chairman of such meeting. Quorum Article 96 provides that If a quorum shall not be present within fifteen minutes from the time appointed for holding a meeting of the Board, it shall be adjourned until such date and time as the Chairman of the Board shall appoint. How questions to be decided Article 97 provides that A meeting of the Board at which a quorum be present shall be competent to exercise all or any of the authorities power and discretions by or under these Articles or the Act for the time being vested in or exercisable by the Board. Casting Vote Article 98 provides that Subject to the provisions of the Act and the provisions of these Articles, the questions arising at any meeting shall be decided by a majority of votes and in case of an equality of votes, the Chairman shall have a second and casting vote. Power to appoint committee and delegate powers Article 99 provides that 197

BAJAJ AUTO FINANCE LIMITED The Board may, subject to the provisions of the Act from time to time and at any time, delegate any of its powers to a committee consisting of such Directors as it thinks fit, and may, from time to time, revoke such delegation. Any committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may from time to time be imposed upon it by the Board. Proceedings of committee Article 100 provides that The meetings and proceedings of any such committee consisting of one or more members shall be governed by the provisions herein contained for regulating the meeting and proceedings of the Board so far as the same are applicable thereto and are not superseded by any regulation made by the Board under the last preceding Article. When acts of a Director notwithstanding defective appointment Article 101 provides that Acts done by a person as Director shall be valid notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defector disqualification or had terminated by virtue of any provisions contained in the Act or in these Articles. Provided that nothing in this Article shall be deemed to give validity to acts done by a Director after his appointment has been shown to the Company to be invalid or to have terminated. Resolution without Board meeting Article 102 provides that Save in those cases where a resolution is required by the Act, to be passed at a meeting of the Board, a resolution shall be as valid and effectual as if it had been passed at a meeting of the Board or Committee of the Board, as the case may be, duly called and constituted, if a draft thereof in writing is circulated together with the necessary papers, if any, to all the Directors or to all the members of the Committee of the Board, as the case may be, then in India(not being less in number than the quorum fixed for a meeting of the Board or Committee, as the case may be) and to all other Directors or members of the Committee at their usual address in India and has been approved by such of them as are in India or by a majority of such of them as are entitled to vote on the resolution. General powers of the Company Article 103 provides that Subject to the provisions of the Act. the control of the Company shall be vested in the Board who shall be entitled to exercise all such powers. and to do all such acts and things as the Company is authorised to exercise and do. provided that the Board shall not exercise any power or do any act or thing which is directed or required. whether by the Act or any other statute or by the Memorandum of the Company or by these Articles or otherwise to be exercised or done by the Company in general meeting. Provided further that in exercising any such power or doing any such act or thing. the Board shall be subject to the provisions in that behalf contained in the Act or any other statute or in the Memorandum of the Company or in these Articles. or in any regulations not inconsistent therewith and duly made there under. including regulations made by the Company in general meeting but no regulations made by the Company in General Meeting shall invalidate any prior Act of the Board which would have been valid if that regulation had not been made. MANAGING DIRECTORS Power to Appoint Managing Directors Article 104 provides that The Board may, from time to time appoint one or more directors to be managing Director or Managing Directors of the Company to hold such office, and may from time to time (subject to the provisions of any contract between him and Company remove or dismiss him from office and appoint another in his place. 198

BAJAJ AUTO FINANCE LIMITED What provision shall he be subject to Article 105(a) provides that A Managing Director or a Whole time Director shall subject to the terms of any contract between him and the Company be subject to the same provisions as to disqualification, resignation and removal as the other Directors of the Company and if he ceases to hold the office of Directors from any cause shall ipso facto and immediately cease to be a Managing Director or a Whole time Director, provided that subject to the provisions of the Act and these Articles, a Managing or a Whole time Director shall not, while he continues to hold that office, be subject to retirement by rotation. Ascertainment of Directors retiring by rotation Article 105(b) provides that Subject to the provisions of the Act and these articles, the Directors to retire by rotation at every Annual General meeting shall be those who have been longest in office since their last appointment but as between persons who become Directors on the same day those who are to retire shall in default of and subject to any agreement among themselves be determined by lot. Subject to the provisions of the Act and these Articles a Retiring Director shall be eligible for reappointment. Eligibility for re-appointment Article 105(c) provides that Subject to any contract between the Company and a Managing Director, or a Whole time Director the remuneration of a Managing Director or a Whole time Director may be by way of salary or commission or participation in profits or by any or all of these modes or in any other form. POWERS OF THE BOARD Powers of Board Article 107 provides that Subject to the provision of the Act and in particular to the prohibitions and restrictions contained in Section 292 thereof the Board may, from time to time, entrust to, and confer upon a Managing Director for the time being, such of the powers exercisable under these presents by the Board as it may think fit, and may confer such powers for such time and to be exercised for such objects and purposes and upon such terms and conditions and with such restrictions as it thinks fit, and the Board may confer such powers, either collaterally with, or to the exclusion of, and in substitution for all or any-of the powers of the Board in that behalf, and may, from time to time, revoke, withdraw, alter or vary al1 or any of such powers. Certain powers of the Board Article 107A provides that Without prejudice to the powers conferred by this Articles and so as not in any way to limit or restrict those powers, and but subject to the restrictions contained in these Articles hereby declared that the Directors shall have the following powers: i) ii) iii) To pay and charge to the capital of the Company any commission or interest lawfully payable there out under the provisions of Sections 76 and 208 of the Act. To accept from any member so far as may be permissible by law, a surrender of his shares or stock or any part thereof, on such terms and conditions as shall be agreed. Subject to the provisions of the Act and these Articles, to invest and deal with any monies of the Company not immediately required for the purposes thereof upon such security (not being shares of this Company) or without security and in such manner as they think fit, and from time to time to vary or realise such investments, provided that save as permitted by Section 49 of the Act, all investments 199

BAJAJ AUTO FINANCE LIMITED shall be made and held in the Companys own name. iv) Subject to the provisions of Section 293 and 293A of the Act to subscribe and contribute or otherwise to assist, or to guarantee money to charitable, benovolent, religious, scientific, national or other institutions or objects or for any exhibition or for any public, general or useful object not directly relating to the business of the Company. To provide for the welfare of employees or ex-employees of the Company and the dependants of such person by building or contributing to the building of houses or quarters or by grants of money, pensions, gratuities, allowances, bonuses or by subscribing or contributing to provident and other associations, hospitals, dispensaries and any other assistants as the Directors shall think fit.

v)

Appointment of Secretary and Manager Article 108 provides that (a) Subject to the provisions of the Act a Manager and/or a Secretary may be appointed by the Board on such terms, on such remuneration and upon such conditions as it may think fit, and a Manager or a Secretary so appointed may be removed by the Board. A Director may be appointed as a Manager or Secretary.

(b)

RESERVES Reserves to be set aside out of profits Article 113 provides that (i) The Board may before recommending any dividend set a side out of the profits of the Company such sums as it thinks proper, as a reserve or reserves which shall at the discretion of the Board, be applicable for any purpose to which the profits of the Company may properly be applied, including provisions for meeting contingencies or for equalising dividend, and pending such application, may, at the like discretion, either be employed in the business of the Company or be invested in such investment (other than shares of the Company) as the Board may from time to time think fit. The Board may also carry forward any profits which it may think prudent not to divide, without setting them aside as a reserve.

(ii)

CAPITALISATION OF PROFITS Capitalisation Article 114 provides that (1) The Company in General Meeting may, upon the recommendation of the Board, resolve: (a) that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of the Companys reserve account or to the credit of the Profit and Loss account or otherwise available for distribution and that such sum be accordingly set free for distribution in the manner specified in the clause (2) amongst thereto if distributed by way of dividend and in the same proportion.

(b) (2)

The sum aforesaid shall not be paid in cash but shall be applied, subject to the provisions contained in clause (3) in or towards: (a) (b) (c) paying up any amounts for the time being unpaid on any shares held by such members respectively. paying up in full for unissued shares of the Company to be allotted and distributed by crediting as fully paid up, to and amongst such members in the proportions aforesaid, or partly in the way specified in sub-clause (a) and partly in that specified in sub- clause (b).

200

BAJAJ AUTO FINANCE LIMITED (3) The share premium account and the capital redemption reserve account may for the purposes of this regulation, be applied in the paying up of unissued shares to be issued to members of the Company as fully paid bonus shares. The Board shall give effect to the resolution passed by the Company in pursuance of this regulation.

(4)

Resolution in respect of capitalization of profits Article 115 provides that (1) whenever such a resolution as aforesaid shall have been passed, the Board shall: (a) (b) (2) make all appropriations and application of the undivided profits resolved to be capitalised thereby, and all allotment and issues of fully paid up shares, if any; and generally do all acts and things required to give effect thereto.

The Board shall have full power: (a) (b) to make provisions for the issue of fractional certificate or for payment in cash or otherwise, as it thinks fit for the shares or debentures becoming distributable in fractions and also; to authorise any person to enter on behalf of all the members entitled thereto, into an agreement with the Company providing for the allotment to them respectively, credited as fully paid up, of any further shares to which they may be entitled upon such capitalisation or (as the case may require) for the payment up by the Company on their behalf, by the application thereto of their respective proportions of the profits resolved to be capitalised of the amounts, or any part of the amounts remaining unpaid, on their existing shares.

(3)

Any agreement made under such authority shall be effective and binding on all such members.

DIVIDENDS How profits shall be divisible Article 116 provides that Subject to the rights of members entitled to shares (if any) with preferential rights attached thereto, the profits of the Company which shall, from time to time, be determined to be divided in respect of any year or other period shall be applied in the payment of a dividend on the Equity Shares of the Company but so that partly paid up share shall only entitle the holder with respect thereof such a proportion of the distribution upon a fully paid up share as the amount paid there of bears to the nominal amount of shares and so that where capital is paid up in advance of calls upon the footing that the same shall carry interest such capital shall not rank for dividends or confer a right to participate in profits. Declaration of dividend Article 117 provides that The Company in General Meeting may declare a dividend to be paid to the members / according to their rights and interest in the profits and may, subject to the provisions of Section 207 of the Act, fix the time for payment. Power of Directors to limit Dividend Article 118 provides that No larger dividend shall be declared than is recommended by the Board, but the Company in general meeting may declare a smaller dividend. Interim Dividend Article 119 provides that 201

BAJAJ AUTO FINANCE LIMITED The Board may, from time to time, pay to the members such interim dividends as appear to the Board to be justified by the profits of the Company. Debts may be deducted Article 120 provides that The Board may deduct from any dividend payable to any member all sums of money, if any, presently payable by him to the Company, on account of calls or otherwise in relation to the shares of the Company. Dividend and call together Article 121 provides that Any General Meeting declaring a dividend may make a call on the member of such amount as the meeting fixes but so that the call on each member shall not exceed the dividend and the dividend may be set off against the call. Dividend in cash Article 122 provides that No dividend shall be payable except in cash. Provided that nothing in the foregoing shall be deemed to prohibit the capitalisation of profits or reserves of the Company for the purpose of issuing fully paid up bonus shares or paying up any amount for the time being unpaid on the shares held by members of the Company. Effect of transfer Article 123 provides that A transfer of shares shall not pass the rights to any dividend declared thereon before the registration of the transfer by the Company. Payment of Dividend in case the transfer is pending Article 123A provides that Where any instrument of transfer of shares has been delivered to the Company for registration and the transfer of such shares has not been registered by the Company, it shall, transfer the dividend in relation to such shares to the special account referred to the Section 205 A of the Act unless the Company is authorised by the registered holder of such shares in writing to pay such dividend to the transferee specified in such instrument of transfer, and keep in the abeyance in relation to such shares any offer of rights shares under clause (2) of sub-section (I) of Section 8 I of the Act, and any issue of fully paid-up bonus shares in pursuance of sub-section (3) of Section 205 of the Act. Payment of interest on capital Article 124 provides that The Company may pay interest on capital raised for the construction of works or buildings when and so far as it shall be authorised to do by Section 208 of the Act. To whom dividend payable Article 125 provides that No dividend shall be paid in respect of any shares except to the registered holder of such share or to his order or to his bankers but nothing contained in this Article shall be deemed to require the bankers of a registered shareholder to make a separate application to the Company for the payment of the dividend. Nothing in this Article shall be deemed to affect in any manner the operation of Article 122.

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BAJAJ AUTO FINANCE LIMITED Dividend to joint holders Article 126 provides that Any one of several persons who are registered as the joint holders of any share may give effectual receipts for all dividend, bonuses and other payments in respect of such shares. Notice of dividends Article 127 provides that Notice of any dividend, whether interim or otherwise shall be given to the persons entitled thereto in the manner hereinafter provided. Dividends how remitted Article 128 provides that Unless otherwise directed in accordance with Section 208 of the Act, any dividend, interest or other moneys payable in cash in respect of a share may be paid by cheque or warrant sent through the post to the registered address of the holder or in the case of joint holders, to the registered address of one of the joint holders who is the first named in the Register in respect of the joint holders or to such person and such address as the holder or joint holder, as the case may be, may direct and every cheque or warrant so sent shall be made payable to the order of the person to whom it is sent. Treatment to unclaimed dividend Article 129 provides that No unclaimed or unpaid dividend shall be forfeited by the Board. Unclaimed dividend shall be dealt with in accordance with Section 205A of the Act. RECONSTRUCTION Reconstruction Article 130 provides that On any sale of the undertaking of the company the Board or Liquidators on a winding up may. If authorised by a Special Resolution accept fully paid or partly paid up shares. debentures or securities of any other company whether incorporated in India or not either then existing or to be formed for the purpose in whole or in part of the property of the Company and the Board (if the profit of the Company permit) or the Liquidators (in a winding up) may distribute such share or securities, or any other property of the Company amongst the members without realisation or vest the same in trustee for them, and any Special Resolution may provide for the distribution or appropriation of the cash, shares or other securities, benefit or property otherwise than in accordance with the strict legal rights of the members or contributories of the Company, and for the valuation of any such securities or property at such price and in such manner as the meeting may approve and all holders of the shares shall be bound to accept and shall be bound by any valuation or distribution, so authorised and waive all rights in relation thereto, save only in case the Company is proposed to be or is in the course of being wound up, statutory rights (if any) under Section 494 of the Act as are incapable of being varied or excluded by these Articles. SECRECY No shareholders to enter the premises of the Company without permission Article 132 provides that No shareholder or other person (not being a Director) shall be entitled to enter upon the property of the Company or to inspect or examine the premises or information respecting any detail of the trading of the Company or any matter which is or may be in the nature of a trade secret. mystery of trade or secret process or of any matter. whatsoever which may relate to the conduct of the business of the Company and which in the opinion of the Board it will be inexpedient in the interest of the Company to communicate. 203

BAJAJ AUTO FINANCE LIMITED WINDING UP Distribution of assets Article 133 provides that If the Company shall be wound up and the assets available for distribution among the members as such shall be insufficient to repay the whole of the paid up capital such assets shall be distributed so that as nearly as may be the losses shall be borne by the members in proportion to the capital paid up or which ought to have been paid up at the commencement of the winding up on the shares held by them respectively. And if in a winding up the assets available for distribution among the members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, or which ought to have been paid up on the shares held by them respectively but this article is to be without prejudice to the rights of the holders of shares issued upon special terms and conditions. Distribution of assets in specie Article 134 provides that If the Company shall be wound up, whether voluntarily or otherwise the liquidators / may, with the sanction of a Special Resolution divide among the contributories in specie or in kind any part of the assets of the Company and may with the like sanction vest any part of the assets of the Company in Trustees upon such trusts for the benefits of the contributories or any of them, as the liquidators with the like sanction shall think fit. INDEMNITY Indemnity Article 135 provides that Every Directory, Manager, Secretary or Officer of the Company or any person (whether an officer of the Company or not) employed by the Company and any person appointed as Auditors may be indemnified out of the funds of the Company against all liabilities incurred by him as such Directors, Manager, Secretary, Officer, employees, or Auditors in defending any proceedings, whether civil or criminal, in which judgement is given in his favour or in which he is acquitted or in connection with any application under Section 633 of the Act, in which relief is granted to him by the Court.

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BAJAJ AUTO FINANCE LIMITED

SECTION IX: OTHER INFORMATION MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION
The following contracts (not being contracts entered into in the ordinary course of business carried on by us or entered into more than two years before the date of this Letter of Offer) which are or may be deemed material have been entered or are to be entered into by us. These contracts and also the documents for inspection referred to hereunder, may be inspected at the Registered Office of the Company situated at C/o. Bajaj Auto Limited, Mumbai-Pune Road, Akurdi, Pune 411 035 from 11.00 a.m. to 2.00 p.m. from the date of this Letter of Offer until the date of closure of the Subscription List. A. Material Contracts 1. 2. 3. B. Memorandum of Understanding between the Company and JM Morgan Stanley Private Limited dated February 7, 2006. Memorandum of Understanding between the Company and Intime Spectrum Registry Limited dated January 7, 2006. Monitoring Agency Agreement dated November 27, 2006 entered into between the Company and SICOM Limited. Memorandum and Articles of the Company. Certificate of incorporation of the Company. Shareholders resolution passed at the Annual General Meeting held on July 14, 2006 appointing M/s. Dalal & Shah as the statutory auditors for the financial year 2006-2007. Copy of the Board resolutions dated December 10, 2005, January 12, 2006 and July 14, 2006 approving this Issue and copy of the resolution passed by the Preferential/ Rights Issue Committee of Directors dated November 2, 2006. Copy of the Shareholders resolution passed at the Extraordinary General Meeting held on January 12, 2006 approving this Issue. Consents of the Directors, Auditors, Lead Manager to the Issue, Legal Counsel to the Issue, Bankers to the Issue, Registrar to the Issue, Monitoring Agency and Debenture Trustee, to include their names in this Letter of Offer to act in their respective capacities. Letter dated November 17, 2006 from SV Ghatalia & Associates confirming the Tax Benefits as mentioned in this Letter of Offer. Annual Reports of the Company for the last 5 years. The Report of the Auditors, M/s Dalal & Shah as set out herein dated November 15, 2006 in relation to the restated financials of the Company for the last five financial years Application made for the in-principle listing approval dated August 21, 2006 and August 21, 2006 to the BSE and NSE respectively. In-principle listing approval dated August 24, 2006 and August 31, 2006 to the BSE and NSE respectively. Letter dated June 8, 2006 issued by the RBI permitting the issue NCDs in this Issue. Letter No. CFD/DIl/RI/PB/MKS/7890/2006 dated October 18, 2006 and Letter No. CFD/DIL/PB/MKS/ 81145/2006 dated November 30, 2006 issued by SEBI for the Issue. Due diligence certificate dated August 21, 2006 from JM Morgan Stanley Private Limited. Bipartite agreement dated December 29, 1998 between the Company and NSDL to establish direct connectivity with the Depository. Bipartite agreement dated March 22, 2000 between the Company and CDSL to establish direct connectivity with the Depository. Copy of the Public Issue Offer Document of the Company in March 1994. 205

Documents 1. 2. 3. 4.

5. 6.

7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

BAJAJ AUTO FINANCE LIMITED

DECLARATION
No statement made in this Letter of Offer contravenes any of the provisions of the Companies Act, 1956 and the rules made thereunder. All the legal requirements connected with the said issue as also the guidelines, instructions etc. issued by SEBI, Government and any other competent authority in this behalf have been duly complied with. SIGNED BY ALL THE DIRECTORS OF THE COMPANY

Rahul Bajaj Chairman

Madhur Bajaj

Rajiv Bajaj

Sanjiv Bajaj

DS Mehta

Ranjan Sanghi

Rajendra Lakhotia

Naresh Patni

Dipak Poddar Managing Director

CS Ravindran President and Chief Financial Officer

Suhas Patwardhan Company Secretary and Compliance Officer

Place: Pune Date: December 1, 2006 Enclosure: Composite Application Form

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