RETAIL RESEARCH

TAX-FREE BONDS ISSUE

08 Mar 2016

National Bank for Agriculture and Rural Development

Summary:
National Bank for Agriculture and Rural Development (NABARD) has come up with public issue of tax free bonds for the face value of Rs 1,000 each in the nature of
secured, redeemable non-convertible debentures having tax benefits under section 10 (15) (iv) (h) of the Income tax Act, 1961, as amended, for an amount of Rs.3500
crore.
This Issue of NABARD will open for subscription on March 09, 2016 and close on March 14, 2016 (with an option for early closure or extension, as may be decided by
the Board of NABARD). The issue consists of two series of Bonds 10 years and 15 years carrying interest rate (paying annually) @ 7.04% and 7.35% p.a. respectively.
The Retail Individuals and HUF (applying for upto Rs.10 lakhs) would get an additional 25 bps/29 bps interest rate viz, 7.29% and 7.64% for the respective tenures.
In terms of the CBDT Notification, NABARD has been authorised to raise the Bonds aggregating to Rs. 5,000 crore in the Fiscal 2016. So far in the fiscal, the Company
has raised Rs. 1500 Crore on a private placement basis through Private Placement Offer Letters February 23, 2016. NABARD shall ensure that Bonds issued through the
public issue route and private placement route in Fiscal 2016 shall together not exceed the allocated limit.
Government has permitted top seven state owned entities to sell tax free bonds (with different issue size) in the current financial year (FY16) to raise Rs.40,000 crore.
They are NHAI, IRFC, HUDCO, IREDA, PFC, REC and NTPC. In the earlier financial years, the state run companies (totally 13 state run entities) were allowed to issue
these tax free bonds with the total amount allocated at Rs. 30,000 crore, Rs. 60,000 crore and Rs. 50,000 crore for the FY12, FY13 and FY14 respectively (Nil in FY15).
All tax free bonds issues that came out so far in this fiscal received huge response from the investors front and most got oversubscribed on the day 1 itself.
The NABARD issue has been rated by two rating agencies. CRISIL has assigned a rating of CRISIL AAA/Stable to the Bonds while India Ratings has assigned a rating of
IND AAA/ Stable. These rating are not a recommendation to buy, sell or hold securities and investors should take their own decision. This rating is subject to revision
or withdrawal at any time by the assigning rating agency (ies) and should be evaluated independently of any other ratings.

Objects of the Issue:

The Net Issue Proceeds as raised through each of the Tranche are proposed to be utilized for direct lending to certain irrigation projects in India based on criteria as
determined from time to time by NABARD and refinancing irrigation projects; and up to 25% of the proceeds of the Issue may be used for general corporate purposes
inclusive of issue expenses in accordance with the CBDT Notifications. Further, in accordance with the SEBI Debt Regulations, NABARD will not utilize the proceeds of
the Issue for providing loans to or acquisition of shares of any person who is part of the same group or who is under the same management as NABARD.

Tax benefits available on investing in these tax free bonds:

The tax benefit available is on the interest income from these tax free bonds which is exempted from tax. But the investible amount in these bonds does not get
any tax benefit.

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Interest from these Bonds do not form part of total income as per provisions of Section 10 (15) (iv) (h) of Income Tax Act, 1961 read along with Section 14A (1) of
the Income Tax Act.
There is no upper limit for any investors on investing in these bonds to get the tax free interest income. However, to retain 25bps/29bps in coupon rate, the
investment by retail investors (this is applicable only for retail investors) should not exceed Rs. 10 lakh in the series of the bonds issued in the tranche. The same
case is applicable while buying from secondary market also.
Since the interest income on the Bonds is exempt, no tax deduction at source (TDS) is required. However interest on application money would be liable for TDS
as well as would be subject to tax as per present tax laws.
Wealth tax has been abolished w.e.f. financial year 2015-16 i.e. assessment year 2016-17.
Capital Gain Taxes: Buying and Selling Tax Free Bonds in the secondary market attracts capital gain tax. If you sell these tax free bonds within 12 months from the
date you have bought, then you will have to pay tax on the gains as per your tax slab. If you sell after 12 months, then tax has to be paid at flat rate of 10%. There is
no indexation benefit available.

Availability of Tax free bonds in the secondary markets:

The tax free bonds that were issued during FY12, FY13, FY14 and FY16 so far (issued by the 13 PSU companies to the total of face value worth Rs. 1,36,000 crore
approximately) have been listed either on BSE or NSE or both. Out of 157 series of tax free bonds listed, close to 24 series of bonds are actively traded (at least on 15
sessions out of 19 to 21 total sessions in a month). Investors may also consider this secondary markets option to buy though liquidity may be a challenge on some days.
You may click the following link to access the details of actively traded tax free bonds in the secondary market.
http://hdfcsec.com/Share-Market-Research/DebtReports/4/All
The following table lists out the tax free bonds which are actively traded in the secondary markets BSE and NSE.
Some of actively traded tax free bonds in the secondary markets (traded on at least 15 out of 20 sessions in the last one month period ended 08th March 2016):

Series

HUDCO050327
901HUDCO34 - Individual
774IREDA31 - Individual
IRFC NJ - Individual
NHAI - N6 - Individual
NHAI - N8 - Individual
NHAI - NA - Individual
NHBTF2014 - N6 - Individual
892PFC33 - Individual
760PFC35 - Individual

RETAIL RESEARCH

HSL ID

HUD820N2NR
HUD9013BNR
774IREDA31
IRF753NJNR
NHA875N6NR
NHA739N8NR
NHA760NANR
NHB901N6NR
PFC892B3NR
PFC760B3NR

Credit
Rating

Date of
Allotment

Coupon
Rate(%)

AAA
AAA
AA+
AAA
AAA
AAA
AAA
AAA
AAA
AAA

07-Mar-12
13-Jan-14
21-Jan-16
21-Dec-15
05-Feb-14
11-Jan-16
11-Jan-16
13-Jan-14
16-Nov-13
17-Oct-15

8.20%
9.01%
7.74%
7.53%
8.75%
7.39%
7.60%
9.01%
8.92%
7.60%

Residual
Maturity
11.01 Years
17.87 Years
14.89 Years
14.81 Years
12.93 Years
9.86 Years
14.87 Years
17.87 Years
17.72 Years
19.63 Years

Interest paid on

5 of March
13 of January
21 of January
15 of October
15 of March
1 of April
1 of April
13 of January
16 of November
17 of October

Latest
Record
Date
19-Feb-16
29-Dec-15

29-Feb-16

29-Dec-15
02-Nov-15

Last
Trade
Price
(Rs)

YTM
(%)

1074.99
1174.5
1032
1023.87
1132.51
1006.1
1026.28
5842.94
1168.9
1051.01

7.22%
7.38%
7.49%
7.45%
7.14%
7.49%
7.45%
7.42%
7.45%
7.38%

No of days
traded over
the last one
month (20
Sessions)
23
23
23
23
23
23
23
23
23
23

Daily
Average
Volume
1996
1428
10212
4631
2043
954
34356
185
2300
728

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871REC28 - Individual
743REC35- Individual
891IIFCL34E - Individual
IRFC NA - Individual
820NHAI22
830NHAI27
IRFC NK - Individual
NTPC ND - Individual
876HUDCO28 - Individual
820PFC2022
HUDCO050322
751HUDCO28
879PFC28 - Individual
793REC22
876HUDCO24 - Individual
764HUDCO31 - Individual
IRFC N2
NHBTF2023 - N6 - Individual
830PFC2027
736PFC25 - Individual
722REC22TF
NTPC - N6 - Individual
812REC27
IRFC NI - Individual
843PFC23 - Individual
826REC23 - Individual
866IIFCL24C - Individual

REC871N9NR
REC743B335
IIF891NBNR
IRF865NANR
NHA820N1NR
NHA830N2NR
IRF750NKNR
NTP762NDNR
HUD876B2NR
PFC820N5NR
HUD810N3NR
HUD751N5NR
PFC879B2NR
REC793NBNR
HUD8761BNR
764HUDCO31
IRF810N2NR
NHB893N6NR
PFC830N6NR
PFC736B1NR
RECLTDN1NR
NTPLTDN6NR
REC812NBNR
IRF732NINR
PFC843B1NR
REC826N8NR
IIF866NCNR

AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA
AAA

24-Sep-13
05-Nov-15
22-Jan-14
18-Feb-14
25-Jan-12
25-Jan-12
21-Dec-15
05-Oct-15
25-Oct-13
01-Feb-12
07-Mar-12
16-Feb-13
16-Nov-13
27-Mar-12
13-Jan-14
08-Feb-16
23-Feb-12
24-Mar-14
01-Feb-12
17-Oct-15
19-Dec-12
16-Dec-13
27-Mar-12
21-Dec-15
16-Nov-13
24-Sep-13
22-Jan-14

8.71%
7.43%
8.91%
8.65%
8.20%
8.30%
7.50%
7.62%
8.76%
8.20%
8.10%
7.51%
8.79%
7.93%
8.76%
7.64%
8.10%
8.93%
8.30%
7.36%
7.22%
8.91%
8.12%
7.32%
8.43%
8.26%
8.66%

12.57 Years
19.68 Years
17.90 Years
12.97 Years
5.90 Years
10.90 Years
19.81 Years
19.60 Years
12.65 Years
5.92 Years
6.01 Years
11.96 Years
12.71 Years
6.07 Years
7.87 Years
14.94 Years
10.98 Years
13.06 Years
10.92 Years
9.63 Years
6.80 Years
17.80 Years
11.07 Years
9.81 Years
7.71 Years
7.56 Years
7.89 Years

1 of December
28 of December
22 of January
15 of April
1 of October
1 of October
15 of October
5 of October
25 of October
15 of October
5 of March
16 of February
16 of November
1 of July
13 of January
8 of February
15 of October
24 of March
15 of October
17 of October
1 of December
16 of December
1 of July
15 of October
16 of November
1 of December
22 of January

16-Nov-15
14-Dec-15
07-Jan-16
30-Mar-15
16-Sep-15
16-Sep-15

01-Oct-15
29-Sep-15
19-Feb-16
25-Jan-16
02-Nov-15
16-Jun-15
29-Dec-15
29-Sep-15
11-Mar-16
29-Sep-15
16-Nov-15
01-Dec-15
16-Jun-15
02-Nov-15
16-Nov-15
07-Jan-16

1130
1020.65
1146
1199.95
1090
1118
1010
1056
1139.9
1076
1052.9
1025
1148
1082
1105.1
1015
1083.78
6100
1105
1058
1022
1158
1129.5
1005
1109.99
1079
1105

7.38%
7.34%
7.53%
7.18%
7.02%
7.18%
7.57%
7.38%
7.42%
7.26%
6.99%
7.26%
7.30%
7.34%
7.18%
7.53%
7.38%
7.30%
7.30%
6.95%
7.14%
7.49%
7.14%
7.49%
6.99%
7.26%
7.06%

23
23
22
22
22
22
21
21
20
20
19
19
19
19
18
18
18
18
18
18
18
17
17
16
16
16
15

1719
1320
548
371
4120
5237
1150
613
745
454
1862
1195
218
792
328
14852
2683
69
876
130
134
683
1166
247
348
130
204

Please note, while buying bonds from secondary markets, investors should mainly look at the YTM, liquidity and credit rating. They should not take decision based on
the coupon rate or the current market price - whether traded at premium or to discount to the face value.

Issue Terms:
Issuer
Issue
Face value Issue Price and minimum
application
Stock Exchanges for listing
Issuance

RETAIL RESEARCH

National Bank for Agriculture and Rural Development (NABARD).

Tax free bonds of face value of Rs. 1,000.00 each, in the nature of secured, redeemable, nonconvertible, debentures, having benefits
under section 10(15)(iv)(h) of the Income Tax Act for an amount of Rs 3,500 crore during fiscal 2016.
Rs.1,000, Rs.1,000 & (5bonds) Rs.5,000 respectively. The minimum number of Bonds per Application Form will be calculated on the
basis of the total number of Bonds applied for under each such Application Form and not on the basis of any specific option.
The Bonds shall be listed on the BSE within 12 Working Days from the Issue Closure Date.
Both physical and dematerialized form

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Trading
Trading Lot
Call / Put options
Rating
Nature of instrument

Security

Compulsorily in dematerialized form

1 (one) Bond
Nil
CRISIL AAA / Stable by CRISIL and IND AAA / Stable by India Ratings.
Secured.
The Bonds shall rank pari passu inter-se, and shall be secured by way of (i) first pari passu charge on the present and future book debts
of NABARD (excluding any book debts which have been or may be exclusively charged to other lenders or trustees) and (ii) a first pari
passu charge on a specific immovable asset of NABARD, as set out in the Bond Trust Deed, to the extent of at least 100% of the amounts
outstanding and interest due thereon in respect of the Bonds until all amounts on the Bonds are repaid in full. The assets, being the
book debts and immovable property on which charge is created are free from any encumbrances

Issue Details:
For Category Investors
Options
Frequency of Interest Payment
Tenor
Coupon Rates (% p.a.)
Annualized Yield (%)
Redemption amount (Rs / bond)
Mode of payment
Coupon Rate (%) p.a
Effective pre-tax yield (per annum) for tax payers in 10.3% income tax bracket
Effective pre-tax yield (per annum) for tax payers in 20.6% income tax bracket
Effective pre-tax yield (per annum) for tax payers in 30.9% income tax bracket

For Category I, II & III

For Category IV only
Series 1A
Series 2A
Series 1B
Series 2B
Annual
Annual
Annual
Annual
10 years
15 years
10 years
15 years
7.04%
7.35%
7.29%
7.64%
7.04%
7.35%
7.29%
7.64%
Repayment of the Face Value + interest
Direct Credit, NECS, RTGS, NEFT and Cheques or Demand drafts
7.04%
7.35%
7.29%
7.64%
8.19%
8.52%
7.85%
8.13%
8.87%
9.26%
9.18%
9.62%
10.19%
10.64%
10.55%
11.06%

For HNIs, surcharge @12% of Income tax is applicable on taxable incomes above Rs.1 cr. In such a case the pretax yield will be even higher.

Note:
1. The company will pay extra 25bps (10 year)/29bps (15 Year) coupon rate for retailers holding the Bonds as on the record date - i.e. category IV investors (invest
less than 10 lakh in these bonds). For eg, as seen in the above table, retail investors will get 7.29% for 10 year bond which is 25 bps higher than that of 7.04%
for non-retailers.
2. If bonds allotted to retailers are transferred to non retailers, then the extra 25bps/29bps on interest rates will not be available: If the Bonds allotted against
Series 1B and Series 2B are transferred by Retail Individual Investors to Non- Retail Individual Investors, being Category I, Category II and Category III investors,
the coupon rate on such Bonds shall stand at par with coupon rate applicable on Series 1A and Series 2A respectively.
3. If bonds allotted to retailers are transferred to retailers, then the extra 25bps/29bps on interest rates will be available: If the Bonds allotted against Series 1B
and Series 2B are sold/transferred by the Retail Individual Investors to investor(s) who fall under the Retail Individual Investor category as on the Record Date
for payment of interest, then the coupon rates on such Bonds shall remain unchanged.

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4. If any retailer holds the bonds for the face value amount of over Rs. 10 lakh, then he will lose out the 25bps/29bps extra benefit on the coupon rate: If on any
Record Date, the original Retail Individual Investor Allotee(s)/transferee(s) hold the Bonds under Series 1A, Series 1B, Series 2A and Series 2B for an aggregate
face value amount of over Rs. 10 lakh, then the coupon rate applicable to such Retail Individual Investor Allottee(s)/transferee(s) on Bonds under Series 1B and
Series 2B shall stand at par with coupon rate applicable on Series 1A and Series 2A respectively. Please note that to retain the 25bps/29bps, the investment in
the bonds by the retailers should not exceed the aggregate face value amount of Rs. 10 lakh either in a single series of the issue or the summation of the
investment in the different series of the issue in same tranche.
5. Verification on the basis of PAN: For the purpose of classification and verification of status of the eligibility of a Bondholder under the Retail Individual Investor
category, the aggregate face value of Bonds held by the Bondholders in all the Series of Bonds Allotted under the Issue shall aggregated on the basis of PAN.
6. Bonds Allotted under Series 1A and Series 2A shall carry coupon rates indicated above until the maturity of the respective Series of Bonds irrespective of
category of holder(s) of such Bonds.

Taxation Explained:

Tax Free: The Bonds are tax free in nature (exempt u/s 10(15)(iv)(h) of the Income Tax Act, 1961 and the interest on the Bonds will not form part of the total
income.

TDS: Since the interest Income on these bonds is exempt, no Tax Deduction at Source is required.

Long Term Capital Gains: Under section 2 (29A) & 2 (42A) of the Income Tax Act, the Bonds are treated as a long term capital asset if the same is held for more
than 12 Months where they are subject to the tax at 10% flat.

Short Term Capital Gains: Short-term capital gains, where bonds are held for a period of not more than 12 months would be taxed at the investors tax
bracket.

STT: Securities Transaction Tax (STT) is not applicable on transactions in the Bonds.

Gift Tax: As per section 56(2)(vii) of the I.T. Act, the gift shall be taxable as the income of the recipient where the aggregate fair market value of which exceeds
Rs. 50,000.

Wealth Tax: No wealth tax is levied.

Cess: A 2% education cess and 1% secondary and higher education cess on the total income tax (including surcharge for corporate only) is payable by all
categories of tax payers on taxable income.

Who can apply?

Category I:

Public Financial Institutions, scheduled commercial banks, multilateral and bilateral development financial institutions, state industrial development
corporations, which are authorised to invest in the Bonds;

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Provident funds and pension funds with minimum corpus of Rs. 25 crore, which are authorised to invest in the Bonds;
Insurance companies registered with the IRDA;
National Investment Fund (set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of the Government of India and published in the Gazette of
India);
Insurance funds set up and managed by the army, navy or air force of the Union of India or set up and managed by the Department of Posts, India;
Mutual funds registered with SEBI; and
Alternative Investment Funds, subject to investment conditions applicable to them under the Securities and Exchange Board of India (Alternative Investment
Funds) Regulations, 2012.

Category II:

Companies within the meaning of section 2(20) of the Companies Act, 2013*;
Statutory bodies / corporations*;
Co-operative banks;
Public / private / religious / charitable trusts
Limited liability partnerships formed and registered under the provisions of the Limited Liability Partnership Act, 2008;
Societies in India registered under law and eligible to invest in Bonds;
RRBs;
Association of Persons;
Partnership firms in the name of partners; and
Any other domestic legal entities / persons as may be permissible under the CBDT Notifications and authorised to invest in the Bonds in terms of applicable
laws.

Category III:
The following investors applying for an amount aggregating above Rs. 10.00 lakhs across all series of Bond in this Issue

Resident Indian individuals; and

Hindu Undivided Families through the Karta.

Category IV:
The following investors applying for an amount aggregating upto and including Rs. 10.00 lakhs across all series of Bond in this Issue

Resident Indian individuals; and

Hindu Undivided Families through the Karta.

Who can not apply?

The following persons and entities will not be eligible to participate in the Issue and any Applications from such persons and entities are liable to be rejected:
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Minors;
Persons Resident Outside India, Foreign nationals (including Non-resident Indians, Foreign Institutional Investors and Qualified Foreign Investors) and other
foreign entities;
Overseas Corporate Bodies;
Indian Venture Capital Funds;
Foreign Venture Capital Investors;
Persons ineligible to contract under applicable statutory/ regulatory requirements; and
Any category of investor other than the Investors mentioned in categories I, II, III, and IV.

Basis of Allotment:
Applicants belonging to all three Categories will be allocated as given in the table below:
Particulars
Reservation for each Portion

Category I

Category II

Category III

Category IV

15% of the Overall Issue Size

15% of the Overall Issue Size

10% of the Overall Issue Size

60% of the Overall Issue Size

Note:
Applicants belonging to these categories will be allotted in the first instance on first come first serve basis (determined on the basis of date of upload of the
Applications on the electronic Application platform of the relevant stock exchanges). In case of an oversubscription in any of the Portions, Allotments to the maximum
extent, as possible, will be made on a first-come first-serve basis and thereafter on proportionate basis in each portion, i.e. full Allotment of Bonds to the Applicants on
a first come first basis up to the date falling 1 (one) day prior to the date of oversubscription and proportionate allotment of Bonds to the Applicants on the date of
oversubscription (based on the date of upload of each Application on the electronic Application platform of the relevant stock exchanges, in each Portion).

Credit Rating:
CRISIL has assigned a rating of CRISIL AAA / Stableto the Bonds vide letters dated February 19, 2016 and India Rating has assigned a rating of IND AAA/ Stable
(Outlook: Stable) to the Bonds vide letters dated February 22, 2016 for an amount up to Rs 5,000 crore.
Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit
risk. The above ratings are not a recommendation to buy, sell or hold securities and investors should take their own decision. The ratings may be subject to revision or
withdrawal at any time by the assigning rating agencies and should be evaluated independently of any other ratings.

Interest on application money:

The issuer pays interest on Application Amounts on the amount allotted, subject to deduction of income tax under the provisions of the Income Tax Act, as applicable,
to any Applicants to whom Bonds are Allotted (except for ASBA Applicants) pursuant to the Issue from the date of realization of the cheque(s)/demand draft(s) upto
one day prior to the Deemed Date of Allotment, at the rate of 7.04% p.a. and 7.35% p.a. in respect of Applications for Allotment Series 1A Bonds and Series 2A Bonds,
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respectively made by Allottees under Categories I, II and III and 7.29% p.a. and 7.64% p.a. in respect of Applications for Allotment of Series 1B Bonds, Series 2B Bonds,
respectively made by Allottees under Categories IV. NABARD will not be liable for payment of any interest beyond such period.

Interest on Refund: 5% per annum.

Liquidity and Exit Options: The Bonds are proposed to be listed on the BSE.
Company Background:
NABARD is an apex development institution in India, having its headquarters in Mumbai (Maharashtra). It has a mandate under the NABARD Act to facilitate credit and
other facilities for the promotion and development of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other
allied economic activities in rural areas in India with a view to promoting integrated rural development. It was established on July 12, 1982 by a special Act of
Parliament and its main focus has since been the up liftment and development of rural India by increasing the credit flow for elevation of agriculture and rural nonfarm sector.
It has been entrusted with matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas in India.
As on March 31, 2015, NABARD operates throughout the country through its 31 Regional Offices, a cell at Srinagar and Training establishments at Lucknow, Bolpur and
Mangalore. It also has 400 District Development Offices across the country as of March 31, 2015 and has mandate to support all other allied economic activities in rural
areas, promote integrated and sustainable rural development and secure prosperity of rural areas.
NABARD a financial institution established under Section 3 of the NABARD Act came into existence on July 12, 1982 and having a perpetual succession and a common
seal. NABARD undertakes its financings activities through direct finance and refinance which is available to SCARDBs, State Cooperative Banks, RRBs, Commercial Banks
and other financial institutions approved by RBI.

Financial Performance:
Parameters
Net worth
Total Debt (of which)
Non Current Maturities of Long Term Borrowing
Short Term Borrowing
Current Maturities of Long Term Borrowing
Net Fixed Assets
Non Current Assets
Cash and Cash Equivalents
Current Assets
Current Liabilities
Interest Income
Interest Expense
Provisioning &Write-offs

RETAIL RESEARCH

Sept 2015
25,580.67
2,33,704.25
NA
NA
NA
337.18
NA
159.28
NA
NA
10,067.06
7,412.10
24.43

Fiscal 2015
24,328.84
2,29,937.9
NA
NA
NA
325.19
NA
2314.96
NA
NA
17,485.27
12,928.96
114.25

Fiscal 2014
21,615.61
2,02,679.4
NA
NA
NA
325.28
NA
434.44
NA
NA
15,250.73
11,297.52
73.13

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Profit after tax (PAT)
Gross NPA (%)
Net NPA (%)
Tier I Capital Adequacy Ratio (%)
Tier II Capital Adequacy Ratio (%)

1,251.83
0.05%
0.01%
16.39%
1.08%

2,403.26
0.05%
0.01%
15.83%
1.08%

1,860.25
0.04%
0.01%
15.48%
1.13%
(Rs Crs)

Competitive Strengths:

Continued support from GoI and key public policy role in Indias agriculture sector.
Strong Capitalisation.
Robust Asset Protection Mechanisms
Adequate Borrowing Profile.

Strategy:

Fulfilling the credit needs of India's rural economy

Asset Creation for Rural Economy
Financing Short Term Business Operations.
Agri-Commodity Value Chains, Opportunities for Small Farmers, Value Addition and Linkages, Support to Producer Organisations
Micro-Finance Initiatives and Financial Inclusion
Mitigating Risks in Agriculture and Addressing Distress
Sustainable Agriculture, Climate Change and Promoting Natural Resource Managemen
RIDF and Rural Infrastructure
Research Development and Consultancy

Risks & Concerns:

If the level of NPAs in NABARDs loan portfolio were to increase, its financial condition would be adversely affected.
It may not be able to recover, or there may be a delay in recovering, the expected value from security and collaterals for its loans, which may affect its financial
condition and will result in increased non performing asset levels.
Its borrowers may not insure their assets and any insurance of assets may not be adequate to protect them against all potential losses to which they may be
subject, which could affect NABARDs ability to recover the loan amounts due to it.
NABARD operates directly and indirectly in the rural and agricultural sectors in India and any impact on these sectors could adversely affect its business, results
of operations and financial condition.
Inability to develop or implement effective risk management policies and procedures could expose NABARD to unidentified risks or unanticipated levels of risk.
It has a dispersed network of regional offices and are exposed to operational risks, including employee negligence, fraud, petty theft, misappropriation of funds
and embezzlement and misconduct, which could harm its results of operations and financial position.

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NABARD operates various schemes, funds and grants of the GoI and changes in these will affect its results of operations and financial position.
Volatility in interest rates for lending operations as well as the rates at which NABARD borrows from banks / financial institutions, could have a material
adverse affect its return on assets and profitability.
A decline in capital adequacy ratio could restrict its future business growth.
NABARD is subject to credit, market, currency and liquidity risks and, if any such risk were to materialise, NABARDs credit ratings and its cost of funds may be
adversely affected.
There are outstanding legal proceedings in which NABARD is involved, and any adverse decision in such proceedings may have a material adverse effect on its
business, result of operations and financial condition
Success of NABARD depends on its management team and skilled personnel and ability to attract and retain such persons
The risks to financial stability could adversely affect NABARDs business.
NABARD has granted loans to certain borrowers on a non-recourse or limited recourse basis, which increases the risk of non-recovery and may adversely affect
the financial condition.
The GoI holding 99.60% stake in NABARD, enables the GoI to significantly influence NABARD.
If NABARD is unable to manage growth effectively, its business and financial results could be adversely affected.
Business may be adversely affected by future regulatory changes.
A slowdown in economic growth in India could adversely impact NABARDs business.
A decline in Indias foreign exchange reserves may affect liquidity and interest rates in the Indian economy, which could adversely impact NABARDs financial
condition.
Difficulties faced by other banks, financial institutions or NBFCs or the Indian financial sector generally could cause NABARDs business to be adversely affected.
Recent global economic conditions have been unprecedented and challenging and have, and continue to have, an adverse effect on the Indian financial
markets and the Indian economy in general, which may continue to have, a material adverse effect on the business, financial condition and results of
operations.
Companies operating in India are subject to a variety of Central and State Government taxes and surcharges.
Any downgrading of Indias debt rating, NABARD credit rating or the rating of its Bonds may affect the trading price of the Bonds and ability to raise funds.
Payments made on the Bonds will be subordinated to certain tax and other liabilities preferred by law.

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Kanjurmarg (East), Mumbai 400 042 Fax: (022) 30753435 Website: www.hdfcsec.com
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others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or
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Disclaimer: HDFC Bank (a shareholder in HDFC Securities Ltd) is associated with this issue in the capacity of one of the Escrow Collections Banks/ Bankers to the issue and Refund Bankers and will earn fees
for its services. This report is prepared in the normal course, solely upon information generally available to the public. No representation is made that it is accurate or complete notwithstanding that HDFC Bank is
acting for NABARD. This report is not issued with the authority of NABARD. Readers of this report are advised to take an informed decision on the issue after independent verification and analysis. HDFC
Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475."

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