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Bharat Financial Inclusion Ltd.

BSE: 533228 Sector: Financials
NSE: BHARATFIN ISIN Code: INE180K01011
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OPEN 971.35
CLOSE 974.25
VOLUME 19025
52-Week high 1046.50
52-Week low 465.40
P/E
Mkt Cap.(Rs cr) 13,361
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Bharat Financial Inclusion Ltd. (BHARATFIN) - Director Report

Company director report

Dear Members

Your Board of Directors (the "Board") takes pleasure in presenting theFourteenth Annual Report of Bharat Financial Inclusion Limited (formerly known as"SKS Microfinance Limited") (the "Company") together with the auditedfinancial statements for the year ended March 31 2017.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

The financial performance of the Company is summarized below:

Q1FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY 2017 FY 2016 Change (%)
Total revenue ( Rs in crore) 414.1 449.6 454.9 409.3 1727.9 1320.7 30.8
Less: Total expenditure ( Rs in crore) 275.1 303.7 312.1 644.2 1535.1 926.8 65.6
Profit Before Tax( Rs in crore) 139.1 145.9 142.8 (234.9) 192.8 393.9 -51
Profit After Tax ( Rs in crore) 235.9 145.9 142.8 (234.9) 289.7 303.0 -4.4
Earnings Per Share (EPS) ( Rs ) 18.52 11.41 10.36 (17.03) 21.8 23.9 -8.7
Diluted EPS ( Rs ) 18.29 11.26 10.26 (17.03) 21.6 23.6 -8.6

The operational highlights of the Company are summarized below:

Year ended March 31 2017 2016 Change (%)
Number of branches 1399 1324 5.7
Number of members (in lakh)* 67.0 69.7 (3.9)
Number of employees 14775 11991 23.1
Amount disbursed ( Rs in crore) 14666.9 12087.8 21.3
Gross loan portfolio ( Rs in crore) 9149.6 7688.0 19.0
Gross loan portfolio* ( Rs in crore) 9149.6 7676.9 19.2

*outside Andhra Pradesh and Telangana

The Government of India demonetized Rs 500 and Rs 1000 bank notes effective November 92016. This step was taken with a view to curb financing of terrorism through the proceedsof Fake Indian Currency

Notes (FICN) and the use of such funds for subversive activities such as espionagesmuggling of arms drugs and other contrabands into India and to eliminate menace of blackmoney. However this has affect the growth and collection of all MFIs (including theCompany). severely

As per the Company's provisioning policy for portfolio loans the Company wasconstrained to make NPA provision of Rs 308.40 crore crore (in addition to the standardprovision of Rs 71.8 crore) and consequently the Company had posted a loss of Rs 234.9crore for the fourth quarter of FY17. As a consequence of this though the Company posteda profit after tax (‘PAT') of Rs 381.8 for the half year ended September 30 2016the PAT of the Company for the financial year has reduced to Rs 289.7 as compared to a PATof Rs 303.0 crore for FY16.

CAPITAL INFUSION

During the year under review the Company successfully completed its fund raisingthrough Qualified Institutional Placement (‘QIP') of equity shares in the month ofSeptember 2016 resulting in a capital infusion of Rs 749.99 crore. The Company has issued9740259 equity shares at price of Rs 770 per share. The QIP was oversubscribed multipletimes.

RESOURCE MOBILISATION

During the year under review the Company continue to diversify the sources of fundsand raised a sum of Rs 6900.2 crore by way of short-term long-term loans and commercialpapers which was 5.7% lower as compared to Rs 7317.4 crore raised during FY16 but 45.8%higher as compared to Rs 5019.9 crore during FY15.

The net worth of the Company as on March 31 2017 was Rs 2446.7 crore and capitaladequacy as on March 31 2017 was 33.5% well in excess of the mandated 15%.

The Company's cost of borrowings reduced to 10.6% in FY17 as compared to 11.6% forFY16. This reduction was mainly driven by sustained turnaround and diversification ofsources of funding. In line with the Company's policy of passing on the cost advantagesaccruing from economies of scale operational efficiency and reduction in the cost ofborrowing to its borrowers the rate of interest charged by the Company is the lowest rateamong the private sector Non-Banking Financial Company -

Micro Finance Institutions (‘NBFC-MFIs') on its core Income Generating Loans(‘IGL').

BUSINESS OVERVIEW

As of March 31 2017 the Company had 67.0 lakh Members including 53.2 lakh Borrowersspread across 1266 branches (All branches in states other than Andhra Pradesh andTelangana) in India with a gross loan portfolio of Rs 9149.6 crore as compared to Rs7676.9 crore in FY16.

Please refer Management Discussion and Analysis Report for more information on theCompany's Business Overview.

DIVIDEND

In order to conserve resources the Directors have not recommended any dividend for theyear under review.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

Changes in the composition of the Board of Directors

During the year under review Mr. Sumir Chadha and Mr. Paresh D. Patel ceased to beDirectors of the Company effective from May 4 2016 and July 21 2016 respectively.

The Board wishes to place on record its appreciation for the valuable contribution ofMr. Sumir Chadha and Mr. Paresh D. Patel in the sustained growth of the Company duringtheir tenure as Directors of the Company.

The Board based on the recommendation of the Nomination and Remuneration Committeeappointed Mr. Ashish Lakhanpal as an Additional Director of the Company with effect fromMay 24 2017.

A proposal to appoint Mr. Ashish Lakhanpal as a Director liable to retire by rotationis being included in the Notice of the ensuing AGM to seek your approval.

Directors Retiring by Rotation

To comply with the provisions of Section 152 of the Companies Act 2013 (‘CA2013') Mr. M.R. Rao Managing Director & CEO shall retire by rotation at the ensuingAGM being eligible offered for reappointment.

Declaration of Independence

The Company has received declarations from all Independent Directors of the Companyconfirming that they meet the criteria of independence as prescribed under Section 149(6)of the CA 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations2015 ("SEBI LODR Regulations").

Key Managerial Personnel

As on date Mr. M.R. Rao Managing Director & CEO Mr. K. V Rao Chief OperatingOfficer Mr. Ashish Damani Chief Financial Officer and Mr. Rajendra Patil CompanySecretary of the Company are the Key Managerial Personnel ("KMP") of theCompany. During the year under review Mr. S. Dilli Raj President has resigned from theservices of the Company on September 21 2016 and was relieved from the services of theCompany effective October 28 2016

Details of Subsidiary Associate and Joint Venture of the Company:

The Company doesn't have any subsidiary associate and joint venture.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 134(3)(c) of the CA 2013 with respect toDirectors' Responsibility Statement it is hereby confirmed that:

1. in the preparation of the accounts for the year ended March 31 2017 the applicableaccounting standards have been followed and there are no material departures from thesame;

2. the Directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that were reasonable and prudent so as to give a true andfair view of the state of affairs of the Company as at March 31 2017 and of the profit ofthe Company for the year under review;

3. the Directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the CA 2013 for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;

4. the Directors had prepared annual accounts of the Company on a ‘going concern'basis;

5. the Directors had laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and were operatingeffectively; and

6. the Directors had devised proper systems to ensure compliance with the provision ofall applicable laws and that such systems were adequate and operating effectively.

POLICY FOR SELECTION AND APPOINTMENT OF DIRECTORS AND REMUNERATION POLICY

Policy for Selection and Appointment of Directors

In compliance with the provisions of the CA 2013 and SEBI LODR Regulations the Boardon the recommendation of the Nomination and Remuneration Committee ("NRC")approved the Policy for Selection and Appointment of Directors.

The aforesaid Policy provides a framework to ensure that suitable and efficientsuccession plans are in place for appointment of Directors on the Board so as to maintainan appropriate balance of skills and experience within the Board. The Policy also providesfor selection criteria for appointment of directors viz. educational and professionalbackground general understanding of the Company's business dynamics global business andsocial perspective personal achievements Board diversity and payment of remuneration tothe directors of the Company.

NUMBER OF MEETINGS OF THE BOARD OF DIRECTORS

The details of the meetings of the Board of Directors of the Company held during theyear are mentioned in the Corporate Governance Report which is provided separately in thisAnnual Report.

AUDITORS

(a) Statutory Auditors

The existing Statutory Auditors S. R. Batliboi & Co. LLP Chartered Accountantswere appointed at the Eleventh Annual General Meeting for a period of three years untilthe conclusion of the

Fourteenth Annual General Meeting.

In view of the mandatory requirement for rotation of auditors upon completion of 10years of association with a company in terms of Section 139 of the CA 2013 S. R.Batliboi & Co. LLP

Chartered Accountants will retire as the Company's Auditors at the conclusion of theensuing

Fourteenth Annual General Meeting. It is proposed to appoint BSR & Associates LLPChartered Accountants (FRN : 116231W / W-100024) as the new Statutory Auditors of theCompany. BSR & Associates LLP Chartered Accountants are proposed to be appointed fora period of five continuous years i.e. from the conclusion of Fourteenth Annual GeneralMeeting till the conclusion of Nineteenth Annual General Meeting of the Company.

BSR & Associates LLP Chartered Accountants have informed the Company that theirappointment if made would be within the limits prescribed under Section 141 of the CA2013 and have also confirmed that they have subjected themselves to the peer reviewprocess of the Institute of Chartered Accountants of India (‘ICAI') and hold validcertificates issued by the Peer Review Board of the ICAI. BSR & Associates LLP havealso furnished a declaration in terms of Section 141 of the CA 2013 that they are eligibleto be appointed as auditors and that they have not incurred any disqualification under theCA 2013.

The Board recommends appointment of BSR & Associates LLP Chartered Accountants asStatutory Auditors of the Company from the conclusion of Fourteenth Annual General Meetingup to the conclusion of Nineteenth Annual General Meeting of the Company subject toratification at every Annual General Meeting.

The Board of Directors places on record its appreciation for the services rendered byS. R. Batliboi & Co. LLP Chartered Accountants as the Statutory Auditors of theCompany.

Members' attention is drawn to a Resolution proposing the appointment of BSR &Associates LLP Chartered Accountants as the new Statutory Auditors of the Company whichis included in the Notice convening the Fourteenth Annual General Meeting.

(b) Secretarial Auditor and Secretarial Audit Report

Pursuant to Section 204 of the CA 2013 the Company had appointed BS & CompanyCompany Secretaries LLP as its Secretarial Auditors to conduct the secretarial audit ofthe Company for FY17. The Report of secretarial auditor for FY17 is annexed herewith asAnnexure - I to Directors' Report.

There are no qualifications reservation or adverse remark made by the StatutoryAuditor and Secretarial Auditor in their reports save and except disclaimer made by themin discharge of their professional obligation.

DETAILS OF FRAUDS REPORTED BY THE STATUTORY AUDITORS

During the year under review the Statutory Auditors of the Company have not reportedany fraud as required under Section 143(12) of the CA 2013.

PARTICULARS OF LOANS OR GUARANTEES OR INVESTMENTS

Pursuant to the clarification dated February 13 2015 issued by the Ministry ofCorporate Affairs and Section 186(11) of the CA 2013 the provision of Section 134 (3)(g)of the CA 2013 requiring disclosure of particulars of the loans given investments made orguarantees given or securities provided is not applicable to the Company.

RELATED PARTY TRANSACTIONS

All transactions entered into with Related Parties as defined under the CA 2013 andSEBI LODR

Regulations during the year under review were in the ordinary course of business and atan arm's length pricing basis and do not attract the provisions of Section 188 of the CA2013. The details of the transactions with related parties if any are placed before theAudit Committee from time to time.

Details of the related party transactions which are exempted according to a proviso toSection 188 of the CA 2013 during FY17 are disclosed in Note 27 of the financialstatements.

The policy on Related Party Transactions as approved by the Board is displayed on thewebsite of the Company athttp://www.bfil.co.in/wp-content/themes/sks/public/downloads/SKS-Related%20Party%20Transaction%20Policy-Version%201-October%2029%202014.pdf

TRANSFER TO RESERVES

During the year the Company has transferred an amount of Rs 57.94 crore to StatutoryReserve as required (20% of Profit after tax) under Section 45-IC of RBI Act 1934.

MATERIAL CHANGES AND COMMITMENTS IF ANY AFFECTING THE FINANCIAL POSITION OF THECOMPANY

There are no material changes and commitments affecting the financial position of theCompany which has occurred between the end of the financial year of the Company i.e.March 31 2017 and the date of the Directors' Report.

CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGOUNDER SECTION 134(3)(M) OF THE CA 2013

The provisions of Section 134(3) (m) of the CA 2013 relating to conservation of energyand technology absorption do not apply to the Company. The Company has however usedinformation technology extensively in its operations.

During the year under review the Company's earning and outgo in foreign exchangeearning was Nil and Rs 1.9 crore respectively. In connection with the foreign exchangeoutgo you are also advised to refer Note 32 of the financial statements.

ANNUAL EVALUATION OF THE BOARD

A statement on formal evaluation of the Board is mentioned in the Corporate GovernanceReport which is provided separately in this Annual Report.

RISK MANAGEMENT POLICY

The Board of the Company has adopted the Risk Management Policy based on therecommendation of the Risk Management Committee in order to assess monitor and managerisk throughout the Company.

Risk is an integral part of the Company's business and sound risk management iscritical to the success of the organization.

Detailed information on risk management is provided in the Management Discussion andAnalysis Report.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

In compliance with Section 135 of the CA 2013 read with the Companies (Corporate SocialResponsibility Policy) Rules 2014 the Company has established the Corporate SocialResponsibility Committee (CSR Committee) in the year 2014 and the composition and functionthereof are mentioned in the Corporate Governance Report.

The Board adopted the CSR Policy formulated and recommended by the CSR Committee andthe same is available on the Company's website.

During FY17 the Company has pursued four (4) CSR Projects viz. Drishti AnimalWellness Camps Sanjeevani and Mental Health awareness programme details thereof aregiven in the Report on Corporate Social Responsibility Activities which is annexedherewith as Annexure - II to the Directors' Report.

DEPOSITS

During the year under review the Company has not accepted any deposit from the public.

DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS ORTRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANY OPERATIONS IN FUTURE

There are no significant material orders passed by the Regulators Courts or Tribunalswhich would impact the going concern status of the Company and its future operations.

INFORMATION REQUIRED UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTIONPROHIBITION & REDRESSAL) ACT 2013

The Company has a policy against sexual harassment and a formal process for dealingwith complaints of harassment or discrimination. The Company seeks to ensure that all suchcomplaints are resolved within defined timelines. During FY17 the Company has receivedten complaints of these seven complaints have been resolved and three complaint werepending as on March 31 2017. The Company has conducted 20 workshops/ awareness programson prevention of sexual harassment.

INTERNAL FINANCIAL CONTROLS

The Company has adequate internal controls and processes in place with respect to itsoperations which provide reasonable assurance regarding the reliability of thepreparation of financial statements and financial reporting as also functioning of otheroperations. These controls and processes are driven through various policies andprocedures.

Detailed information on Internal Financial Controls is provided in the ManagementDiscussion and Analysis Report.

VIGIL MECHANISM

The Company has adopted the Whistle-blower Policy and details of the same areexplained in the Corporate Governance Report. The Policy is also available on theCompany's website.

PARTICULARS OF EMPLOYEES

The ratio of the remuneration of each director to the median employee's remunerationand other details in terms of Section 197(12) of the CA 2013 read with Rule 5(1) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 have beenannexed herewith as Annexure III to the Directors' Report.

The statement containing particulars of employees as required under Rule 5(2) and Rule5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014is provided in a separate annexure forming part of the Directors' Report. In terms ofSection 136 of the CA 2013 the Directors' Report and the Accounts are being sent to theMembers excluding the aforesaid annexure and the same is open for inspection at theRegistered Office of the Company. A copy of the statement may be obtained by the Membersby writing to the Company Secretary of the Company.

MANAGEMENT DISCUSSION AND ANALYSIS

The Management Discussion and Analysis Report for the year under review is presentedseparately in this Annual Report.

CORPORATE GOVERNANCE

The Company has adopted best corporate practices and is committed to conducting itsbusiness in accordance with the applicable laws rules and regulations. The Companyfollows the highest standards of business ethics. A report on Corporate Governance(forming part of Directors' Report) is provided separately in this Annual Report. Duringthe year under review the Company was assigned a Corporate Governance Rating of CGR2 byICRA Limited which implies that in ICRA's opinion the company has adopted and followssuch practices conventions and codes as would provide its financial stakeholders a highlevel of assurance on the quality of corporate governance. The Compliance Certificate fromBS & Company Company Secretaries LLP regarding compliance of conditions of corporategovernance under the SEBI LODR Regulations is annexed to the Corporate Governance Report.

BUSINESS RESPONSIBILITY REPORT

The Business Responsibility Report for the year under review has been annexed asAnnexure - IV to the Directors' Report.

EMPLOYEE STOCK OPTION PLAN (ESOP) AND EMPLOYEE SHARE PURCHASE SCHEME (ESPS)

Presently stock options have been granted or shares have been issued under thefollowing scheme/ plans

A. SKS Microfinance Employee Share Purchase Scheme 2007 ("ESPS 2007")

B. SKS Microfinance Employee Stock Option Plan 2008 (Independent Directors) ("ESOP2008 (ID)")

C. SKS Microfinance Employee Stock Option Plan 2008 ("ESOP 2008")

D. SKS Microfinance Employee Stock Option Plan 2009 ("ESOP 2009")

E. SKS Microfinance Employee Stock Option Plan 2010 ("ESOP 2010")

F. SKS Microfinance Employee Stock Option Plan 2011 ("ESOP 2011")

The disclosures with respect to each of the above-mentioned scheme/plans as requiredby the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations2014 is displayed at Company's website http://www.bfil.co.in/.

EXTRACT OF ANNUAL RETURN

Pursuant to Section 134 (3)(a) and Section 92 (3) of the CA 2013 read with Rule 12 ofthe Companies (Management and Administration) Rules 2014 an extract of the Annual Returnas at March 31 2017 in form MGT 9 has been annexed as Annexure - V to the Directors'Report.

ACKNOWLEDGEMENTS

Your Directors take this opportunity to express their deep and sincere gratitude to theSangam Members for their confidence and patronage as well as to the Reserve Bank ofIndia the Government of India and Regulatory Authorities for their cooperation supportand guidance. Your Directors would like to express a profound sense of appreciation forthe commitment shown by the employees in supporting the Company in its endeavor ofbecoming one of the leading microfinance institutions of the country. Your Directors wouldalso like to express their gratitude to the members bankers and other stakeholders fortheir trust and support.

For and on behalf of the Board of Directors
Sd/- Sd/-
P.H. Ravikumar M.R. Rao
Non-Executive Chairman Managing Director & CEO
Date: June 8 2017 DIN No.: 00280010 DIN No.: 03276291