INDUS FINANCE LIMITED
Your Directors are pleased to present this 26th Annual Report of the Companytogether with the Audited Accounts for the year ended 31st March 2017
FINANCIAL HIGHLIGHTS AND PERFORMANCE
| || ||( Rs . in Million) |
|PARTICULARS ||2016-17 ||2015-16 |
|Income from Operations ||23.41 ||32.63 |
|Other Income ||10.59 ||12.81 |
|Gross Receipts ||34.00 ||45.44 |
|Expenses ||32.66 ||36.01 |
|Depreciation & Amortization ||0.18 ||0.15 |
|Total Expenses ||32.84 ||36.16 |
|PBT ||1.16 ||9.28 |
|TAX ||0.45 ||2.67 |
|PAT ||0.71 ||6.61 |
|Proposed Dividend / Dividend ||Nil ||3.70 |
|Proposed Dividend Tax / Dividend Tax ||Nil ||0.75 |
|Transfer to Statutory Reserve ||0.14 ||1.32 |
During the period under review your Company focused on recovery and selectiveredeployment in secured lending considering the volatile market conditions. As a resultthe total revenue receipts witnessed a drop which is in line with the drop in ourfinancing cost consequently the profits have also dropped. In view of inadequacy ofprofits your company is not in a position to recommend dividend for the year under review.
ECONOMIC SCENARIO AND OUTLOOK
Though growth appeared to be slow temporarily as a result of disruptions to consumptionand business activity on account of Demonitisation of high-denomination bank notes fromcirculation India remained one of the fastest growing emerging market economies withoverall overlook remaining positive.
NBFCs also performed better in terms of asset quality even though the bad loan normsfor these firms are not as stringent as those for full-fledged commercial banks.
According to The World Bank the Indian economy was expected to grow at 7 per cent in2016-17 followed by further acceleration to 7.6 per cent in 2017-18 and 7.8 per cent in2018-19. Demonitisation is expected to have a positive impact on the Indian economy whichwill help foster a clean and digitised economy in the long run according to The WorldBank.
Non-banking financial companies (NBFCs) improved their performance on most metrics inthe last fiscal year as the banking industry struggled under the weight of a growing pileof bad loans.
Non-banking finance companies (NBFCs) form an integral part of the Indian financialsystem. They play an important role in nation building and financial inclusion bycomplementing the banking sector in reaching out credit to the unbanked segments ofsociety especially to the micro small and medium enterprises (MSMEs) which form thecradle of entrepreneurship and innovation. However NBFCs operate under certain regulatoryconstraints which put them at a disadvantage vis-a-vis banks. While there has been aregulatory convergence between banks and NBFCs on the asset side on the liability sideNBFCs still do not enjoy a level playing field.This needs to be addressed to help NBFCsrealise their full potential and thereby perform their duties with greater efficiency.
The latest Financial Stability report [FSR] released by the Regulator RBI reflects theoverall assessment on the stability of India's financial system and its resilience torisks emanating from global and domestic factors. The Report also discusses issuesrelating to development and regulation of the financial sector. According to the FSR;
Reforms in foreign direct investment implementation of goods and services tax(GST) and revival in external demand are likely to contribute to a better growth outlook.The capital market indices moved to a higher territory reflecting these positivesentiments.
Under asset quality pressures credit intermediation by banks has retrenched andthat by NBFCs and mutual funds has increased significantly.
The aggregate balance sheet of the NBFC sector expanded by 14.5 per cent during2016-17 their net profit was down by 2.9 per cent.
As of March 2017 there were 11517 non-banking financial companies (NBFCs)registered with the Reserve Bank of which 179 are deposit-accepting (NBFCs-D). There were220 Systemically Important Non-Deposit accepting NBFCs (NBFCs- ND-SI).. All NBFC-D andNBFCs-ND-SI are subjected to prudential regulations such as capital adequacy requirementsand provisioning norms along with reporting requirements.
According to FSR Domestically macroeconomic conditions remained stable and theexpectations of accelerated reforms and political stability further reinforced the overallpositive business sentiment. Retail inflation witnessed significant decline during therecent quarters and the real gross value added (GVA) growth decelerated to 6.6 per cent in2016-17 from 7.9 per cent in 2015-16 largely reflecting slowdown in services.Government's commitment to fiscal discipline had a positive impact on macroeconomicoutlook. The impact of Demonetisation if any on exchange rate and portfolio flows wasmomentary. Amidst concerns over asset quality credit intermediation by public sectorbanks has retrenched while that by NBFCs and mutual funds has increased significantly.Notwithstanding the current benign conditions it is important to guard againstgeopolitical risks.
FUTURE OUT LOOK:
Innovation and diversification are the important contributors to achieve the desiredobjectives. The NBFC sector in India has undergone a significant transformation over thepast few years. It has come to be recognised as one of the systemically importantcomponents of the financial system and has shown consistent year-on-year growth. NBFCsplay a critical role in the core development of infrastructure transport employmentgeneration wealth creation opportunities and financial support for economically weakersections; they also make a huge contribution to state exchequer. With the launch of theDigital India programme a flagship programme of the Government of India to digitallyempower society NBFCs will have to find ways to serve the millennial customers throughdigital mean.
In order to compete in this changing lending landscape NBFCs need to realise theimmense value of alternative data and make investments in technology and analytics todevelop advanced credit scoring models that leverage both traditional and non-traditionaldata sources. NBFCs will need to develop behaviour-based credit risk models on the linesof those developed by online lenders which incorporate the social graph personalnetwork employment history and educational background of the borrower into their creditscoring rules. Customers who are qualified to obtain credit but are unable to do sobecause of their credit score (or lack thereof) will specifically benefit from the use ofalternative credit scoring mechanisms that work alongside the NBFC's traditional creditunderwriting model.
India's financial system remains stable even though the banking sector continues toface significant challenges. While the global growth outlook and market sentiments haveimproved political stability on the domestic front has further reinforced expectations ofaccelerated reforms overall positive business sentiment and macroeconomic stability. Withmarket condition still being volatile the full impact of GST yet be known and with SCBsbusy in cleaning up operations [of NPAs] IFL being a loan company does not wish to beaggressive in lending for one more year. The wait& watch and cautious approach allthese years has helped your company to survive compared to those who disappeared from thescene.
OPPORTUNITIES & THREATS:
The biggest opportunity NBFCs had all these years was that they played very crucialrole in channelizing the scare financial resources to capital formation and became anintegral part of the lending where banks had major role. In addition they could reach theremote area where banks could not. With the mounting NPAs the SCBs busy in cleaning thebalance sheet there is tremendous scope for the NBFCs to quickly grasp the businessopportunity. But there are many "new banks" coming up and they have anaggressive standpoint much similar to NBFCs except that they function with a lower costof capital. The introduction of the Goods and Services Tax has affected most industries.The interest income which is the main source of revenues for most NBFCs will not beaffected. There will be a marginal increase in the tax rate. But instead there will bemore leveling of the playing field.
RISKS & CONCERNS:
The biggest risk NBFCs face is making sure that the loan is paid back. While thebusiness risk associated with operating environment ownership structure ManagementSystem & Policy and Corporate Governance the financial risk lies in Asset QualityLiquidity Profitability and Capital Adequacy. The unabated increase in NPAof thecommercial banks is also a concern to NBFCs as the sector cannot survive at the cost ofthe downfall of another sector. Every Financial Institution irrespective of the size issubject to various kinds of business as well as financial risk. With the business risk ismore concerned with the operating environment falling or deteriorating economy willincrease the risk associated with the business IFCL recognizes these risks and makes besteffort to mitigate them in time.
NUMBER OF MEETINGS OF BOARD
Indus Finance Ltd held 4 Board Meetings during the year ended 31st March 2017. Thesewere on 24th May 201630th July 201631 st October 2016 and 8thFebruary 2017.
Ms. Alice Chhikara is retiring in the forth-coming 26th AGM of the companyand being eligible offers herself for re-appointment.
STATEMENT ON DECLARATION GIVEN BY INDEPENDENT DIRECTOR UNDER SECTION 149 (6) OFCOMPANIES ACT 2013
The Company has obtained declaration from the Independent Directors that they meet thecriteria of Independence has provided in section 149 (6) of the Companies Act 2013
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to Section 134 (3) (c) and 134 (5) of the Companies Act 2013 the Board ofDirectors hereby state that;
1. In the presentation of the Annual accounts applicable standards have been followedand there are no material departures.
2. The Directors have selected such accounting policies and apply them consistently andmade judgments and estimates that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company as at 31st March 2017 and profit for theCompany for the year ended 31 st March 2017
3. The Directors have taken proper and sufficient care in the maintenance of adequateaccounting records in accordance with the provisions of the Act for safe guarding theassets of the Company and for preventing and detecting fraud and other irregularities
4. The Directors have prepared the annual accounts on a going concern basis; and
5. The Directors in the case of listed company had laid down internal financialcontrols to be followed by the company and that such internal financial controls areadequate and were operating effectively.
6. The Directors had devised proper systems to ensure compliance with the provisions ofall applicable laws and that such systems were adequate and operating effectively.
POLICY FOR SELECTION ANDAPPOINTMENT OF DIRECTORS ANDTHEIR REMUNERATION
The Nomination and Remuneration (N&R) Committee has adopted a Charter which interalia deals with the manner of selection of Board of Directors and CEO & ManagingDirector and their remuneration. This policy is accordingly derived from the said charter.
1. Criteria of Selection of Non-Executive Directors
a. The Non-Executive Directors shall be of high integrity with relevant expertise andexperience so as to have a diverse Board with Directors having expertise in the fields ofmanufacturing marketing finance taxation law governance and general management.
b. In case of appointment of Independent Directors the N&R Committee shall satisfyitself with regard to the independent nature of the Directors vis-a-vis the Company so asto enable the Board to discharge its function and duties effectively.
c. The N&R Committee shall ensure that the candidate identified for appointment asa Director is not disqualified for appointment under Section 164 of the Companies Act2013.
d. The N&R Committee shall consider the following attributes / criteria whilstrecommending to the Board the candidature for appointment as Director.
i. Qualification expertise and experience of the Directors in their respective fields.
ii. Personal Professional or business standing:
iii. Diversity of the Board.
e. In case of re-appointment of Non-Executive Directors the Board shall take intoconsideration the performance evaluation of the Director and their engagement level.
The Non-Executive Directors shall be entitled to receive remuneration by way of sittingfees reimbursement of expenses for participation in the Board/Committee meetings
i. A Non-Executive Director shall be entitled to receive sitting fees for each meetingof the Board or Committee of the Board attended by him of such sum as may be approved bythe Board of Directors within the overall limits prescribed under the Companies Act 2013and the Companies (Appointment and Remuneration of Managerial Personnel Rules 2014)
ii. The Independent Directors of the Company shall not be entitled to participate inthe Stock Option Scheme of the Company if any introduced by the Company
3. CEO Managing Director/Whole Time Director-Criteria for selection/appointment
Forthe purpose of selection of the CEO Managing Director/Whole Time Director theN&R Committee shall identify persons of integrity who possess relevant expertiseexperience and leadership qualities required forthe position and shall take intoconsideration recommendation if any received from any member of the Board.
The Committee will also ensure that the incumbent fulfills such other criteria withregard to age and other qualifications as laid down under the Companies Act 2013 or otherapplicable laws.
4. Remuneration forthe CEO Managing Director/Whole Time Director
i. At the time of appointment or re-appointment the CEO Managing Director / WholeTime Director shall be paid such remuneration as may be mutually agreed between theCompanies (which includes the N&R Committee and the Board of Directors) and the CEOManaging Director / Whole Time Director within the overall limits prescribed under theCompanies Act 2013.
ii. The remuneration shall be subject to the approval of the Members of the Company inGeneral Meeting.
iii. The remuneration of the CEO Managing Director / Whole Time Director componentcomprises salary allowances perquisites amenities and retirement benefits.
5. Remuneration Policy forthe Senior Management Employees
In determining the remuneration of the Senior Management Employees (i.e. KMPs andExecutive Committee Members)the N&R Committee shall ensure/consider the following:
i. The relationship of remuneration and performance benchmark is clear;
ii. The remuneration component comprising salaries perquisites and retirementbenefits;
iii. The remuneration including annual increment is decided based on the criticality ofthe roles and responsibilities the Company's performance vis-a-vis the annual budgetachievement.
iv. N&R Committee will carry out the individual performance review based on thestandard appraisal matrix and shall take into account the appraisal score card and otherfactors whilst recommending the annual increment.
A qualified and independent Audit Committee of the Board of the company is functioning.It monitors and supervises the Management's financial reporting process with a view toensure accurate and proper disclosure transparency and quality of financial reporting.The committee reviews the financial and risk management policies and also the adequacy ofinternal control systems and holds discussions with Statutory Auditors and InternalAuditors. This is enhancing the credibility of the financial disclosures of the companyand also provides transparency.
The company continued to derive immense benefit from the deliberation of the AuditCommittee comprising of Mr. Niranjan R. Jagtap Mr. Bala V. Kutti and Dr. K.R. Shyamsundarwho are highly experienced and having knowledge in project finance accounts and companylaw. Mr. Nirajan R. Jagtap Chairman of the Audit Committee. The Company Secretary acts asthe Secretary of the Audit Committee. The minutes of each Audit Committee meeting areplaced before and discussed in the full by the Board.
THE RATIO OF THE REMUNERATION OF EACH DIRECTORS TO THE MEDIAN REMUNERATION OF THEEMPLOYEES OF THE COMPANY FOR THE FINANCIAL YEAR 2016-17 ARE GIVEN BELOW
|Name of the Directors ||Ratio to Median Employee remuneration |
|Mr. Bala V Kutti - Executive Chairman ||7.68 |
|Dr. K.R. Shyamsundar- Independent Director ||0.19 |
|Mr. Niranjan R Jagtap-lndependent Director ||0.19 |
|Ms. Alice Chhikara - Non Executive Director ||0.02 |
THE PERCENTAGE INCREASE IN REMUNERATION OF DIRECTORS KMP AND MEDIAN EMPLOYEE FORTHEFINANCIAL YEAR 2016-17
There is no increase in remuneration to the Directors KMP and median employee duringthe financial year 2016-17.
DETAILS OF DIRECTORS OR KEY MANAGERIAL PERSONNEL WHO WERE APPOINTED OR HAVE RESIGNEDDURING THE YEAR
Mr. V. Kannappan has been appointed as CFO of the Company as on the date of this reportand there is no resignation of Directors and Key Managerial Personnel of the Companyduring the year under review.
INDUSTRIAL RELATIONS AND PARTICULARS OF EMPLOYEES
As of 31 st March 2017 Your Company has 8 employees on its rolls. The employees willbe inducted in to permanent services of the Company after training; to fill up vacanciesas when arises. Your company has not issued any shares under Employees' Stock optionScheme during the year under review.
VARIATIONS IN THE MARKET CAPITALISATION OF THE COMPANY PRICE EARNINGS RATIO AS AT THECLOSING DATE OF THE CURRENT FINANCIAL YEARAND PREVIOUS FINANCIAL YEAR.
|Particulars ||March 31.2017 ||March 31.2016 ||% Change |
|Market Capitalization (Rs.) ||131930775/- ||92583000/- ||42.50 |
|Price earnings ratio ||63.82 ||43.48 ||46.78 |
PERCENTAGE OF INCREASE OR DECREASE IN THE MARKET QUOTATION OF THE SHARES IN COMPARISONTO THE RATE AT WHICH THE COMPANY CAME OUT WITH THE LAST PUBLIC OFFER
Price of public offer Rs. 30/-. Market price as on 31.03.2017 Rs. 14.25. Difference(Rs. -15.75) (-52.5%)
THE KEY PARAMETERS FOR ANY VARIABLE COMPONENT OF REMUNERATION AVAILED BYTHE DIRECTORS
THE RAIO OF THE REMUNERATION OF THE HIGHEST PAID DIRECTOR TO THAT OF THE EMPLOYEES WHOARE NOT DIRECTORS BUT RECEIVE REMUNERATION IN EXCESS OF THE HIGHEST PAID DIRECTOR DURINGTHEY EAR
LIST OF EMPLOYEES WHO ARE IN RECEIPT OF REMUNERATION MORE THAN THE STIPULATED AMOUNTMENTIONED UNDER RULE 5 (2) OF COMPANIES (APPOINTMENT AND REMUNERATION) RULES2014
AFFIRMATION THAT THE REMUNERATION IS AS PER THE REMUNERATION POLICY OF THE COMPANY
The Company affirms remuneration is as per the remuneration policy of the Company.
Your Company has complied with the requirements regarding Corporate Governance asrequired under SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015entered in to with the Stock exchanges where the Company's shares are listed. A Report onthe Corporate Governance in this regard is made as a part of this Annual Report and acertificate from the Auditors of Your Company regarding compliance of the conditions ofthe Corporate Governance is attached to this report.
LISTING OF EQUITY SHARES
Your Company's equity shares are continued to be listed on the Bombay Stock ExchangeLtd Mumbai during the year under review.
PARTICULARS OF LOANS GUARANTEE OR INVESTMENTS:
Detailed information is provided in respect of loans under long term loans and advancesin Note No. 10 of Notes forming part of the financial statements similarly detailedinformation is provided under Non-Current Investments in Note No. 9 of Notes forming partof the financial statements. As regards guarantee the Company has not provided anyguarantee to any person or Bodies Corporates.
BUSINESS RISK MANAGEMENT:
The Company has developed a Risk Management Policy by identifying the elements of riskwhich are mentioned below. The risk management approach at various levels incliningdocumentation and reporting seeks to create transparency minimize adverse impact on thebusiness objectives and enhance the company's competitive advantage.
The Business risk is associated with operating environment ownership structureManagement System & Policy and Corporate Governance.
The Financial risk lies in Asset Quality Liquidity Profitability and CapitalAdequacy IFL recognizes these risks and makes best effort to mitigate them in time.
One of the major concerns for the sector is the deteriorating asset quality in thebanking sector which has certain indirect impact on the asset qualities of NBFCs also. Anynegative growth of the industry irrespective of the sector has some adverse effect on theworkings of the NBFCs. IFL has always kept in mind the uncertainties and their mitigationwhile conducting the business.
Pursuant to the provisions of the companies Act 2013 and Schedule V of SEBI (ListingObligation and Disclosure Requirements) Regulations 2015 the Board has carried out anannual performance evaluation of its own performance the directors individually as well asthe evaluation of the of its Audit nomination and remuneration and compliance committees.The manner in which the valuation has been carried out has been explained in the CorporateGovernance report.
During the year under review the company has not accepted any deposits from the publicwithin the ambit of section 73 of the companies Act 2013 and The companies (Acceptance ofDeposits) Rules 2014.
There is no significant / material order passed by the Judicial / Regulatoryauthorities during the year under review.
DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY ANY COURTS DURING THE UNDERREVIEW:
WHISTLE BLOWER POLICY
The Company has a whistle blower policy to deal with instance of fraud andmismanagement if an any. The detail of the policy is explained in the Corporate GovernanceReport and posted on the website of the company.
FINANCIAL STATEMENTS OF THE SUBSIDIARY COMPANY IF ANY
M/s.V.Ramaratnam& Co. retires at the conclusion of this Annual General Meeting andare eligible for reappointment.
EXTRACT OF ANNUAL RETURN
As provided in Sec 92 (3) of the Act the extract of annual return is given in Annexure(1) of this report in the format Form MGT-9 which forms part of this report.
TRANSACTIONS WITH RELATED PARTIES
Detailed information is provided with respect to the list of Related Parties andtransactions with them are provided in note No. 18.4 of Notes forming part of thefinancial statements and also in Form No. AOC-2 under Annexure (II).
Mr. R. Kannan PCS is the secretarial auditor of the company for the year under reviewand his report is attached herewith in Form No. MR-3 under Annexure (III). As regards theobservation of the Secretarial Auditor in his report that the company has not appointedCFO for the year under review your company wish to state that Mr. V. Kannappan has beenappointed as CFO of the Company as on the date of this report.
ADEQUACY OF INTERNAL CONTROL
Your Company has effective and adequate internal control systems in combination withdelegation of powers. The control system is also supported by internal audits andmanagement reviews with documented policies and procedures.
M/s. S. Vasudevan & Associates are the Internal Auditors to continuously monitorand strengthen the financial control procedures in line with the growth operations of theCompany.
PARTICULARS REQUIRED UNDER SECTION 134 OF THE COMPANIES ACT 2013 AND ITS COMPANIES(ACCOUNTS) RULES 2014
The particulars required to be given in terms of section 134 of the Companies Act 2013and its Companies (Accounts) Rules 2014 regarding conservation of Energy TechnologyAbsorption Foreign Exchange Earnings and Foreign Exchange outgo are not applicable toYour Company.
The Directors wish to place on record their sincere thanks and gratitude to all itsBond holders Shareholders Bankers State Governments Central Government and itsagencies statutory bodies suppliers and customers for their continued co-operation andexcellent support extended to the Company from time to time.
Your Directors place on record their utmost appreciation for the sincere and devotedservices rendered by the employees at all levels.
| ||FOR AND ON BEHALF OF THE BOARD OF |
| ||INDUS FINANCE LTD. |
|Place: Chennai - 600 034 ||BalaV Kutti |
|Date: 29th April 2017 ||Chairman |