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Satin Creditcare Network Ltd.

BSE: 539404 Sector: Financials
NSE: SATIN ISIN Code: INE836B01017
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VOLUME 5717
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Mkt Cap.(Rs cr) 1,114
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Sell Price 280.65
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OPEN 277.65
CLOSE 275.05
VOLUME 5717
52-Week high 635.00
52-Week low 243.55
P/E
Mkt Cap.(Rs cr) 1,114
Buy Price 279.00
Buy Qty 35.00
Sell Price 280.65
Sell Qty 20.00

Satin Creditcare Network Ltd. (SATIN) - Director Report

Company director report

Dear Members

Your Directors take pleasure in presenting the Twenty Seventh Annual Report of SatinCreditcare Network Ltd. (SCNL/Satin/Company) together with the Audited Accounts for thefinancial year ended March 31 2017.

FINANCIAL SUMMARY/HIGHLIGHTS OPERATIONS STATE OF AFFAIRS

Amount in Rs. (Crores)
Particulars Current Year Previous year
Gross Income 776.67 558.52
Expenses 732.78 467.60
Profit before Depreciation and tax 43.89 90.92
Depreciation and amortization expenses 5.63 2.88
38.25 88.04
Profit Before Exceptional Corporate Social Responsibility Expense Extraordinary
Items And Tax
Exceptional Items - -
Profit Before Extraordinary Items Corporate Social Responsibility Expense And Tax 38.25 88.04
Corporate Social Responsibility Expense 1.05 0.51
Extraordinary Items - -
Profit Before Tax 37.20 87.53
Tax Expense 12.70 29.59
Profit after Tax 24.50 57.94
Brought forward from Previous Year 92.76 47.00
Profit available for appropriation 117.26 104.94
Transfer to Statutory Reserve Fund 4.90 11.59
Proposed Dividend-Preference Share Capital @12.34% - 0.49
Dividend Distribution Tax - 0.10
Surplus carried to Balance Sheet 112.36 92.76

Figures based on standalone results;

OPERATIONS PROSPECTS AND FUTURE PLANS

The Company disbursed 1566368 loans totalling Rs. 3594.03 Crores during the yearended March 31 2017 against Rs. 3606.11 Crores during the previous year. The netoutstanding portfolio (including managed portfolio and net of provisions) as at March 312017 is Rs.3555.98 Crores. The total number of branches are 618 as at March 31 2017 asagainst 431 as at March 31 2016. Satin started its JLG operations in May 2008 from thestate of Uttar Pradesh and since then has diversi ed its JLG lending operations to MadhyaPradesh Jammu & Kashmir Uttarakhand Bihar Maharashtra Himachal PradeshRajasthan Punjab Haryana Chandigarh Chhattisgarh Jharkhand West Bengal Delhi andGujarat. During the financial year 2016-2017 the Company has raised Rs. 110.00 Crores assub debt during the financial year 2016-17.

Your Company acquired 7977239 Equity Shares of M/s Taraashna Services Limited(erstwhile Taraashna Services Private Limited) (TSL/Taraashna) equivalent to 87.83% stakeof TSL. By virtue of acquisition of 7977239 Equity Shares TSL became subsidiary of yourCompany. TSL initially incorporated as private limited company became a deemed publiclimited company after acquisition of 87.83% stake by Satin Creditcare Network Limitedconsequent upon change in constitution Taraashna has received a fresh certi cate ofincorporation on May 12 2017. Pursuant to the acquisition of Taraashna by Satin theBoard of Directors of Satin had allotted 1087456 Equity Shares of Rs. 10 each at anissue price of Rs. 457.82 per share (including premium of Rs. 447.82 per share) on aPreferential basis to persons and entities belonging to promoter and non-promoter grouppursuant to swap of shares of the Company to the shareholders of M/s Taraashna ServicesLimited in accordance with the provisions of Companies Act 2013 read with rules madethereunder and also pursuant to the provisions of Chapter VII of SEBI (ICDR) Regulations2009.

Furtherance to this your Company raised approx. Rs.250 Crores by way of a Quali edInstitutional Placement (QIP) and allotted 4529970 equity Shares of Rs.10 each to Qualied Institutional buyers (QIBs) at an issue price of Rs.551.88 per equity share on October03 2016 under the provisions of Chapter VIII of the SEBI (Issue of Capital and DisclosureRequirements) Regulations 2009 and Section 42 of the Companies Act 2013 including therules made thereunder.

In view of expanding business operations in order to augment the capital base and tomeet the capital requirements the Company has also raised equity capital by way of aPreferential Allotment of 1543187 Equity shares of Rs. 10 each to "AsianDevelopment Bank" (ADB) at an issue price of Rs. 416.67 per shares on April 21 2017and simultaneously issued and allotted 658690 Fully Convertible Warrants to an entityunder Promoter Category of the Company at an aggregate amount of approx. Rs. 30.00 Croresat an issue price of Rs.455.45 per warrant.

During the year 2016-17 the Company has raised borrowings of Rs. 3732 Crores by wayof Term Loans Non-Convertible Debentures ("NCDs") Commercial Papers and Otherworking capital limits which was 77% higher as compared to Rs. 2105.45 Crores raisedduring 2015-16. Further the Company has raised Rs 795.03 Crores by way of securitisationand assignment of receivables which was 41% lower as compared to Rs 1355.97 Crores raisedduring 2015-16 due to demonetisation. The Company has raised Rs. 25 Crores by issuance of25000000 12.10% Rated Cumulative Non-Convertible Compulsorily Redeemable PreferenceShares of face value of Rs.10 each in accordance with the provisions of Section 42 55 and62 of the Companies Act 2013 read with Rules made thereunder of The Companies (ShareCapital and Debentures) Rules 2014.

The Company already has borrowing arrangement with a large number of lenders andcontinuing on the track of diversi cation of sources the Company has initiatedrelationship with 13 new lenders.

Operational Highlights:

Particulars March 2017 March 2016
Number of branches 618 431
Amount disbursed (Rs. in Crores) 3594.03 3606.11
Number of active loan 2298095 1851113
3555.98 3248.01

Total Assets under management including securitized and assigned portfolio (Net ofProvision) (Rs. in Crores) Figures based on standalone results;

Company's Prospects Future Plans and Business Overview:

The business of your Company increased during the year in spite of a challengingenvironment on account of demonetisation. In order to further its diversi cation effortsthe Company is expanding into new geographical territories during the current financialyear. The Company is hopeful of achieving better performance during the current year onthe back of its efforts to diversify its geographic presence along with diversi cation ofits product portfolio to other growth segments.

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

PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS

The Company has duly complied with the provision of Section 186 of the Companies Act2013 and Rules made thereunder. Details on loans or investment are mentioned in financialstatements of this Annual Report. The Company has not given any guarantees to anybodycorporate on behalf of a third party.

DETAILS OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS

The Company has an Internal Control System commensurate with the size scale andcomplexity of its operations.The Company has proper and adequate system of internalcontrol geared towards achieving ef ciency in its operations safeguarding assets optimumutilization of resources and compliance with statutory regulations. Testing of suchcontrol systems forms a part of Internal Audit (IA) function. The scope and authority ofIA function is defined in the IA policy.

The team of Internal Auditors of the Company conduct audits of various departmentsbased on an annual audit plan covering key area of operations. Internal Audit reviews andevaluates the adequacy and effectiveness of internal controls ensuring adherence tooperating guidelines and systems and recommending improvements for strengthening them.Your Company has instituted various preventive or control measures in the loan approvalprocess to mitigate the risk of extending loans to non-existent borrowers or ctitiousborrower.The Company has continued its efforts to align its processes and controls withbest practices and has put in place a process wise internal control framework across theCompany.

MATERIAL EVENT RECORDED SUBSEQUENT TO THE DATE OF FINANCIAL STATEMENTS

During the current financial year the Company has incorporated a wholly ownedsubsidiary in the name of "Satin Housing Finance Limited" (SHFL) with AuthorisedCapital of Rs.150000000 and paid up Equity share Capital of Rs.100000000 with theobjective of balancing the risks of your Company by diversi cation into secured lendingand also by diversi cation of its portfolio from purely rural towards rural / semi urbanand urban markets. Company's foray into the housing finance segment will enable theCompany to have a diversi ed customer base and is in line with the Company's strategy todiversify into other financial products. Company's entry into this new business segmentand focus on affordable housing will provide another growth engine that will contributetowards the growth of the enterprise as a whole. The Company is in the process of ling anapplication with the 'National Housing Bank' (NHB) for registration to commence businessrelating to housing finance. Further the Board of Directors of the Company have proposedto infuse fresh funds into SHFL to meet the initial business needs of SHFL.

Furtherance to this your Company intends to issue securities for an aggregate amountnot exceeding Rs.300 Crores or its equivalent in one or more tranches. Accordingly theBoard of Directors of the Company vide its meeting held on May26 2017 approved thatequity or equity-linked debt capital raising be undertaken by the Company which wouldinvolve creating offering issuing and allotting securities to eligible investors andrecommended same to the members approval at Extraordinary General Meeting at such price orprices at a discount or premium to market price or prices in such manner and on suchterms and conditions as may be deemed appropriate by the Board at its discretion takinginto consideration market conditions and other relevant factors and wherever necessary inconsultation with lead managers and other advisors either in one or more foreigncurrencies or Indian Rupees inclusive of such premium as may be determined by the Boardall in accordance with applicable laws.

SUBSIDIARY AND ASSOCIATES COMPANIES

By virtue of acquisition of 87.83% equity stake of M/s Taraashna Services Limited(TSL) TSL became subsidiary of your Company. Further as stated above Company hasincorporated a wholly owned subsidiary "Satin Housing Finance Limited" (SHFL)with Authorised Capital of Rs.150000000 and paid up Equity share Capital ofRs.100000000

In accordance with Section 129(3) of the Companies Act 2013 we have preparedconsolidated financial statements of the Company includingits subsidiary which forms partof the Annual Report. Further a statement containing salient features of the financialstatements of the Company's subsidiary in Form AOC-1 as Annexure-I also forms partof the Annual Report. SHFL became subsidiary of the Company after March 31 2017 and hencethe same is not considered for the purpose of disclosure.

Further Company has neither any Associates nor any Joint Ventures as on March 312017.

DIRECTORS AND KEY MANAGERIAL PERSONNEL (KMP)

Mr. Satvinder Singh (DIN: 00332521) retire by rotation and being eligible offershimself for re-appointment. Further Nomination & Remuneration Committee and the Boardof Directors have recommended his re-appointment for consideration of the members.

Mr. Davis Frederick Golding (DIN: 00440024) resigned from the Board as investorDirector (Nominee Director for M/s ShoreCap II Limited) w.e.f. August 10 2016. In view ofhis rich experience knowledge and contribution to the organization he was appointed asAdditional Director in the Capacity of Independent Director w.e.f August 30 2016.Pursuant to Section 149 150 152 161 and other applicable provisions of the CompaniesAct 2013 and the Rules made thereunder read with Schedule IV of the Companies Act 2013and as per Articles of Association of the Company Mr. Davis Frederick Golding appointedas a Non-Executive and Independent Director of the Company who have submitted adeclaration that he meets the criteria for independence as provided in Section 149(6) ofthe Companies Act 2013. The Nomination & Remuneration Committee and the Board ofDirectors have also recommended his appointment for consideration of the shareholders. Mr.Davis Frederick Golding will hold the position (if appointed by members) as IndependentDirector of the Company to hold office for a period of five years from the date of hisappointment as additional director(s) or till such earlier date as may be determined byany applicable statutes rules regulations or guidelines and not liable to retire byrotation.

Further during the year under review Mr. Kasper Svarrer (DIN: 0725247) NomineeDirector (Representing Danish Micro finance Partners K/S) and Mr. Sujan Singh Chawla (DIN:00333619) Non-Executive and Independent Director resigned from the Company w.e.f July08 2016 and August 10 2016 respectively. The Board has appreciated their contribution onSatin's Board.

Mr. Ramesh Gururaj Dharmaji (DIN: 01186341) appointed by the Board of Directors of theCompany as Nominee Director of Small Industries Development Bank of India (SIDBI) w.e.f.July 18 2016.

Brief resume of Directors their educational and professional quali cations nature oftheir working experience their achievements name(s) of the companies in which they holddirectorships memberships and chairmanships in various Committees their shareholding inthe Company relationship between directors inter-se are provided in Corporate GovernanceReport forming part of the Annual Report.

During the year 7 (Seven) Board Meetings were held. These Board Meetings were held onApril 25 2016 May 30 2016 June 30 2016 August 10 2016 November 09 2016 February10 2017 and March10 2017.

PERFORMANCE EVALUATION OF BOARD COMMITTEES AND DIRECTORS

During the year under review the Board of Directors of the Company carried out AnnualEvaluation of its own performance its Committees and individual directors (includingIndependent Directors) based on criteria and framework adopted by the Board and inaccordance with existing regulations. The manner of evaluation was conducted afterconsideration of parameters through set of questionnaire(s). The policy on Nomination& Remuneration for Directors Key Managerial Personnel (KMP) and Senior Management andother Employees contains the methodologies of evaluation criteria. The Board found its ownperformance of each Director individually and of its various Committees satisfactory.

STATEMENT ON DECLARATION "CERTIFICATE OF INDEPENDENCE" U/S 149 (6) FROMINDEPENDENT DIRECTORS

Pursuant to Schedule IV and Section 149(6) of the Companies Act 2013 the Board hasIndependent Directors and there is an appropriate balance of skills experience andknowledge in the Board so as to enable the Board to discharge its functions and dutieseffectively. The independent directors have submitted a declaration that the independentdirectors meet with the criteria of independence as required under Section 149(6) of theCompanies Act 2013.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to Section 134 (5) of the Companies Act 2013 the Directors hereby con rm:

1. That in the preparation of the annual accounts the applicable accountingstandards had been followed along with proper explanation relating to material departures;

2. That the directors had selected such accounting policies and applied themconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company at the end of thefinancial year and of the profit and loss of the Company for that period;

3. That the directors had taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of this Act for safeguardingthe assets of the Company and for preventing and detecting fraud and other irregularities;

4. That the directors had prepared the annual accounts on a going concern basis;

5. That the directors had laid down internal financial controls to be followed bythe Company and that such internal financial controls are adequate and were operatingeffectively; and

6. That the directors had devised proper systems to ensure compliance with theprovisions of all applicable laws and that such systems were adequate and operatingeffectively.

INFORMATION ON MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNAL

There are no material orders passed by the regulators or courts or tribunals impactingthe going concern status and Company's operations in future.

RELATED PARTY TRANSACTIONS

During the financial year 2016-17 there is no materially significant Related PartyTransaction with the Company's Promoters Directors the Management or Relatives which mayhave potential conflict with the interest of the Company at large. The Company has alsoformulated a policy on dealing with the Related Party Transactions (including for materialrelated party transactions) and necessary approval of the Audit Committee and Board ofDirectors were taken wherever required in accordance with the Policy. The details of suchpolicies for dealing with all related party transactions are disseminated on the websiteof the Company www.satincreditcare.com.

Particulars of Contracts or Arrangements with related parties referred to in Section188(1) is given in Form AOC- 2 as Annexure-II. Further details of Related PartyTransactions as required to be disclosed by Accounting Standard-18 on "Related PartyTransactions" specified under Section 133 of the Companies Act 2013 read with Rule 7of the Companies (Accounts) Rules 2014 are given in the Notes to the FinancialStatements.

JUSTIFICATION FOR ENTERING INTO RELATED PARTY TRANSACTIONS

At the time M/s Taraashna Services Limited (TSL) was set up NBFCs were neitherpermitted to act as Business Correspondent (BC) for Banks nor were permitted to take astake in a for-Profit NBFC. Hence due to regulatory constraints TSL was created with noshareholding from SCNL. To avoid any conflict of interest and for the benefit of theminority shareholders of SCNL given the common promoter in SCNL and TSL the managementteam took a call to share some part of the TSL's revenue with SCNL irrespective of TSL'sProfitability. The revenue sharing agreement was signed in FY13. In June 2014 the RBI(vide its circular no. RBI/2013-14/653 DBOD.No. BAPD.BC.122/122.01.009/2013-14 dated24.06.2014) permitted banks to appoint Non-Deposit taking NBFC as their BCs. As per thesenew rules micro finance institutions operating as NBFCs (NBFC-MFIs) could operate as BCs.This was done with a view to help extend banking services to remote areas. In view of thechange in regulations and keeping interest of all stakeholders; your Company acquired7977239 Equity Shares of TSL equivalent to 87.83 % stake of TSL. By virtue ofacquisition of 7977239 Equity Shares TSL became subsidiary of your Company. FurtherBoard of Directors of the Company had allotted 1087456 Equity Shares of Rs. 10 each atan issue price of Rs. 457.82 per share including premium of Rs. 447.82 per share onpreferential basis to persons and entities belonging to Promoter and Non-Promoter grouppursuant to swap of shares of the Company to the shareholders of M/s Taraashna ServicesLimited in accordance with the provisions of Chapter VII of SEBI (ICDR) Regulations 2009.

Further during the current financial year your Company has planned to enter into newbusiness segments that can be bene cial for the enterprise as a whole. In April 2017 theCompany has incorporated a wholly owned subsidiary in the name of M/s Satin HousingFinance Limited (SHFL) with Authorised Capital of Rs. 150000000 and paid up Equity shareCapital of Rs. 100000000 with the objective of balancing the risks of your Company bydiversi cation into secured lending and also by diversi cation of its portfolio frompurely rural towards rural/semi urban and urban markets. Company's foray into the housingfinance segment will enable the Company to have a diversi ed customer base and is in linewith the Company's strategy to diversify into other financial products.. Company's entryinto this new business segment and focus on affordable housing will provide another growthengine that will contribute towards the growth of the enterprise as a whole.

Further the remuneration paid to Shri H P Singh Chairman cum Managing Director andthe sitting fee payment to Non-Executive Directors (other than Investor's Nominee) foreach Board/Committee meeting(s) attended are shown under Related party disclosures segmentunder "Notes to the account" of Balance Sheet in terms of Accounting Standard 18issued by The Institute of Chartered Accountants of India.

AUDITORS & THEIR REPORTS

Statutory Auditors & their Report

As per Section 139 of the Companies Act 2013 read with the Companies (Audit andAuditors) Rules 2014 the term of M/s. A.K. Gangaher & Co. (Firm Registration No.004588N) Chartered Accountants New Delhi as the Statutory Auditors of the Companyexpires at the conclusion of 27 Annual General Meeting of the Company.

The Board of Directors of your Company has recommended appointment of M/s WalkerChandiok & Co LLP Chartered Accountants (ICAI Registration 001076N/N500013) as theStatutory Auditors of the Company on the recommendation of the Audit Committee for aninitial term of 5 years in their meeting held on May 26 2017. Accordingly a resolutionproposing appointment of M/s Walker Chandiok & Co LLP Chartered Accountants (ICAIRegistration 001076N/N500013) as the Statutory Auditors of the Company for a term of fiveconsecutive years i.e. from the conclusion of 27 Annual General Meeting till theconclusion of 32 Annual General Meeting of the Company pursuant to Section 139 of theCompanies Act 2013 and the matter forms part of the Notice of the 27 Annual GeneralMeeting of the Company. The Company has received their written consent and a certi catethat they satisfy the criteria provided under Section 141 of the Act and that theappointment if made shall be in accordance with the applicable provisions of the Act andrules framed thereunder.

M/s. A.K. Gangaher & Co. over many years (since inception of the Company) havesuccessfully met the challenges that the size and scale of the Company's operations posefor auditors and have maintained the highest level of governance ethical standards andquality in their audit. The Board placed on record its appreciation for the servicesrendered by M/s. A.K. Gangaher & Co. as the Statutory Auditors of the Company.

During the year under review the Auditors had not reported any matter under Section143 (12) of the Act therefore no details are required to be disclosed under Section 134(3)(ca) of the Act.

Secretarial Auditors & their Report

In terms of Section 204 of the Companies Act 2013 and Rules framed thereunder and onthe recommendation of the Audit Committee the Board of Directors of the Company hadappointed M/s S. Behera & Co. Company Secretaries (ICSI PCS Registration No. 5980) asthe Secretarial Auditor of the Company for the financial year 2016-17. Secretarial auditreport as provided by M/s S. Behera & Co. Company Secretaries is also annexed to thisReport in the prescribed Form No.-MR-3 is annexed as Annexure-III.

Any member interested in hard copy of the Secretarial Audit Report may inspect the sameat the Corporate Office of the Company or write to the Company Secretary for a copy.

The Company has received consent from M/s S. Behera & Co. Company Secretaries fortheir re-appointment and appointed them as Secretarial Auditor in Board meeting held onMay 26 2017 for the financial year 2017-18.

Qualifications in Audit Reports

Your Directors do not observe any quali cation reservation or adverse remark ordisclaimer made by the statutory auditor in his report and by the company secretary inpractice in his secretarial audit report.

AUDIT COMMITTEE

The Company has an Audit Committee in accordance with the provisions of Section 177 ofthe Companies Act 2013 and in accordance with Regulation 18 of SEBI (Listing Obligationsand Disclosure Requirements) Regulations 2015 and as per other applicable laws. Allmembers of the Committee are financially literate within the meaning of the Regulation 18of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. The Chairmanof the Committee was present at the last Annual General Meeting to answer the queries ofthe Shareholders. The scope of the activities of the Audit Committee is as set out inRegulation 18 of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015and read with Section 177 of the Companies Act 2013 and other applicable laws areapproved by Board of Directors of the Company. The composition of the Audit committee andthe details of meetings attended by the Directors are provided in Corporate GovernanceReport Section of this Annual Report.

DIVIDEND

Directors of your Company have recommended a final dividend of Rs.24448630 (excludingdividend distribution tax) which is subject to your approval. The total dividend pay-outfor the financial year will amount to Rs.24448630. Further in order to undertake andcarry on future plans it is necessary to conserve the resources. Your directors are ofthe opinion of retaining the profits for the year within the Company and thus have notrecommended any dividend on equity shares for the year ended March 31 2017.

CORPORATE SOCIAL RESPONSIBILITY

The Board of Directors has constituted the Corporate Social Responsibility Committeevide resolution passed in its meeting held on May 26 2014. As per Section 135 of theCompanies Act 2013 all companies having net worth of Rs. 500 Crore or more or turnoverof Rs.1000 Crore or more or a net profit of Rs. 5 Crore or more during any financial yearare required to const itute a Corporate Social Responsibility (CSR) committee of the Boardof Directors comprising three or more directors at least one of whom will be anIndependent Director. The CSR Committee vide its meeting dated November 07 2016 approvedand recommended to Board for its approvala CSR policy with some necessary modi cations inpreviously approved policy which indicates the activities to be undertaken by the Companyas specified under Schedule VII and the rules made thereunder of Companies Act 2013.Further the Company in its Board meeting dated November 09 2016 approved the same.

Further the composition of the CSR committee and the details of meetings attended bythe Directors are provided in Corporate Governance Report section of this Annual Report.

Now as per the requirement of Rule 8(1) of The Companies (Corporate SocialResponsibilities) Rules 2014 the Annual Report on CSR is annexed as Annexure IV tothis report and the same is posted on the website of the Company i.e. www.satincreditcare.com.

E-VOTING

The Company is providing e-voting facility to all members to enable them to casttheir votes electronically on all resolutions set forth in the Notice. This is pursuant toSection 108 of the Companies Act 2013 and Rule 20 of the Companies (Management andAdministration) Rules 2014 and Regulation 44 of SEBI (Listing Obligations and DisclosuresRequirements) Regulation 2015. The above Rule 20 of the Companies (Management andAdministration) Rules 2014 have been amended on March 19 2015 to introduce a new conceptof e-voting i.e. E-Voting at general meeting through an electronic voting system. Tocomply with the requirements of new Companies Act 2013 and to ensure good governance forits members your Company has provided e-voting facility for its general meetings toenable its members to participate in the voting electronically. The instruction(s) for e-votingfor ensuing Annual General Meeting is also provided with notice to shareholders of thisAnnual Report. The Company has signed necessary agreements with National SecuritiesDepository Limited and Central Depository Services Limited to facilitate e-voting formember approval in their general meetings or through postal ballots.

EMPLOYEES STOCK OPTION PLAN

In order to develop and implement a long term incentive program to attract motivateand retain the talent in a competitive environment the Company has formulated andimplemented "Employees Stock Option Schemes (the Schemes)" which provides forgrant of equity shares of Satin Creditcare Network Limited to employees of the Company.These schemes provide for grant of options to employees of the Company that vest in agraded manner and that are to be exercised within a specified period.

The Company had allotted 425000 equity shares to Satin Employees Welfare Trust at Rs.20 each (including premium of Rs. 10 each) on November 27 2009. The Company had furtherallotted 100000 shares to Satin Employees Welfare Trust at Rs. 22 each (including premiumof Rs. 12 each) on June 22 2010. The Company had further allotted 150000 shares to SatinEmployees Welfare Trust at Rs. 25 each (including premium of Rs. 15 each) on April 212011. These shares were allotted at a value which is over the fair market value of theseshare at the time of allotment and thus no expense has been recognized. As against 425000Equity Shares issued to Satin Employees Welfare Trust under Satin ESOP 2009 the Companygranted 150000 Options to two employees of the company as per the terms of Satin ESOP2009 on January 12 2010. These options are vested and exercised as per terms set outunder ESOP 2009. Further the Company granted 98300 Options out of remaining 275000Equity Shares to various employees as per the terms of Satin ESOP 2009 on December 022013. Out of 98300 shares granted 29090 options were vested and 25824 were exercisedon December 02 2014 and 29100 options were vested and 22633 were exercised on December03 2015 and 29100 options were vested and 27243 were exercised on December 03 2016.The exercised shares are in lock in period of one year from the date of transfer of sharesfrom Satin Employees Welfare Trust to employees further the Company granted 87900Options out of remaining 199300 Equity Shares to various employees as per the terms ofSatin ESOP 2009 on December 02 2016.

DISCLOSURE UNDER SECTION 62 OF THE COMPANIES ACT 2013 RULE 12 OF THE COMPANIES (SHARECAPITAL AND DEBENTURES) RULES 2014 AND SEBI (SHARE BASED EMPLOYEE BENEFITS) REGULATIONS2014 FOR THE YEAR ENDED MARCH 31 2017

A. The Board of Directors of your Company has approved an Employees' Stock OptionScheme (ESOS) during the Year 2009 and 2010 in accordance with SEBI (Employee Stock OptionScheme and Employee Stock Purchase Scheme) Guidelines 1999 (hereinafter referred to as"SEBI Regulations") with the objective of strengthening employee bonds with theCompany and creating a sense of ownership. Your Board felt it appropriate to extend ESOPsto permanent employees in the management staff in order to motivate and retain the besttalent. Further during the year the Company has not made any amendments in the scheme.Your Company is providing below disclosures in terms of applicable laws.

A. Relevant disclosures in terms of the ' Guidance note on accounting for employeeshare-based payments' issued by The Institute of Chartered Accountants of India (ICAI) orany other relevant accounting standards as prescribed from time to time.

1. The Company had 'Nil' share-based payment arrangements during the year ended March31 2017.

2. The estimated fair value of each stock option granted in the general employee stockoption plan is Rs.420.75. This was calculated by applying Black Scholes pricing model. Themodel inputs were as follows

Inputs Satin ESOP 2009
First Grant Second Grant Third Grant
Share Price at grant Date N.A N.A N.A.
Exercise price 20.00 20.00 20.00
Expected Volatility - - -
Expected Dividends - - -
Contractual Life 1.17 2.17 3.17
Risk Free Interest Rate 6.09% 6.04% 6.03%

3. The estimated fair value of each share granted in the executive stock plan isRs.420.75.

4. Other information regarding employee share-based payment plans is as below:

Particular Year ended March 31 2017 Year ended March 31 2016
(Amount in Rs.) (Amount in Rs.)
Expense arising from employee share-based payment plans 5203662.00 3780469.00
Expense arising from share and stock option plans Nil Nil
Closing balance of liability for cash stock appreciation plan Nil Nil
Expense arising from increase in fair value of liability for
Nil Nil
cash stock appreciation plan

B. Diluted EPS on issue of shares pursuant to all the schemes covered under theregulations shall be disclosed in accordance with 'Accounting Standard 20 - Earnings PerShare' issued by ICAI or any other relevant accounting standards as prescribed from timeto time. Diluted EPS is Rs. 7.05.

Effects of Share Options on Diluted Earnings per Share (Accounting year April 01 2016to March 31 2017)

Net profit for the year ended 2017 Rs.244992050.45
Weighted average number of equity shares outstanding during the year ended 2017 34343902 Shares
Average fair value of one equity share during the year ended 2017 Rs.420.75
Weighted average number of shares under option during the year ended 2017 421392 Shares
Exercise price for shares under option during the year ended 2017 Rs.20.00

Computation of earnings per share

Particulars Earnings Shares Earnings Per Share
(Amount in Rs.) (Amount in Rs.)
244992050.45 - -
Net profit for the year ended 2016 (Rs.)
Weighted average number of shares outstanding during year ended 2016 - 34343902 -
Basic earnings per share (Rs.) - - 7.13
Number of shares under option - 449300 -
Number of shares that would have been issued at fair value: - (27908) -
Diluted earnings per share (Rs.) 244992050.45 34765294 *7.05

*Average fair value of one equity shares for the year ended 2017- Rs. 420.75

C. Details related to ESOS

(i) A description of each ESOS that existed at any time during the year including thegeneral terms and conditions of each ESOS

(ii) Method used to account for ESOS Fair Value (Black Scholes Model).

(iii) Option movement during the year (For each ESOS):

Particulars Satin ESOP 2009 Satin ESOP I 2010 Satin ESOP II 2010
(Remarks) (Remarks) (Remarks)
Number of options outstanding at the beginning of the period 226543 100000 150000
Number of options granted during the year 87900 0 0
Number of options forfeited / lapsed during the year 11167 0 0
Number of options vested during the year 29110 0 0
Number of options exercised during the year 27243 0 0
Number of shares arising as a result of exercise of options 27243 0 0
Money realized by exercise of options (INR/Rs.) if scheme is implemented directly by the company Rs. 544860 0 0
Loan repaid by the Trust during the year from exercise price received Rs. 544860 0 0
Number of options outstanding at the end of the year 199300 0 0
Number of options exercisable at the end of the year 26200 0 0

(iv) Weighted-average exercise prices :

• when the exercise price is equal/exceeds to market price.• when theexercise price is less than market price- Rs. 20.00.

Weighted-average fair values

• when the exercise price is equal/exceeds to market price.• when theexercise price is less than market price- Rs. 420.75

(v) Employee wise details (name of employee designation numbe r of options grantedduring the year exercise price)

(a) Senior managerial personnel

Details of Shares vested to Senior Managerial Personnel during this financial year

Name of Employee Designation Number of Option granted during the year Exercise Price (Amount in Rs.)
1 Choudhary Runveer Krishanan Company Secretary & Compliance Officer 6000 Rs. 20 each
Total 6000

(b) Following employees has received a grant in the reporting year of option amountingto 5% or more of option granted during that year;

S. No. Name of Employee Designation No of Options granted
1. Mr. Dev Verma Chief Operating Officer 12000
2. Choudhary Runveer Krishanan Company Secretary & Compliance Officer 6000
3. Mr. Manoj Kumar Deputy Chief Operating Officer 6000
4. Mr. Mukund Madhav Deputy Chief Operating Officer 6000
5. Mr. Ashish Gupta Head-Finance 6000
6. Mr. Kanhaiyalal Brijkishore Agarwal* Head-Internal Audit & Risk 6000

*Note: Resigned on May 05 2017

(c) There is no identified employees who were granted option during any one yearequal to or exceeding 1% of the issued capital (excluding outstanding warrants andconversions) of the company at the time of grant.

(iv) A description of the method and significant assumptions used during the year toestimate the fair value of options including the following information:

(a) the weighted-average values of share price exercise price expected volatilityexpected option life expected dividends the risk-free interest rate and any other inputsto the model;

(b) the method used and the assumptions made to incorporate the effects of expectedearly exercise were

(c) how expected volatility was determined including an explanation of the extent towhich expected volatility was based on historical volatility;

(d) whether and how any other features of the option grant were incorporated into themeasurement of fair value such as a market condition.

The details pursuant to SEBI (Share Based Employee Benefit) regulations 2014 has beenplaced on the website and weblink of the same is www.satincreditcare.com.

POLICIES

Vigil Mechanism/Whistle Blower Policy:

The Company has established a vigil mechanism policy vide incorporating and adopting aWhistle Blower Policy for directors & employees pursuant to the requirement underSection 177(9) of Companies Act 2013 read with Rule 7 of Companies (Meeting of Board& its Powers) Rules 2014 and pursuant to Regulation 18 of the SEBI (ListingObligations and Disclosure Requirements) Regulations. The aforesaid policy was revised andadopted on February 10 2016 in view of enactment of Securities and Exchange Board ofIndia (Listing Obligations and Disclosure Requirements) Regulations 2015. The policyempowers the blower to report concern about unethical behavior actual or suspected fraudor violation of the Company's code of conduct or ethics policy. The detailed vigilmechanism is communicated to all the directors and employees and is also disclosed on thewebsite of the Company www.satincreditcare.com. The employees are free to reportviolations of laws rules regulations or unethical conduct to the whistle and ethics ofcer of the Company

Policy on Nomination & Remuneration for Directors Key Managerial Personnel (KMP)& Senior Management and other Employees:

In pursuance of the Company's policy to consider human resources as its invaluableassets to pay equitable remuneration to all Directors Key Managerial Personnel (KMP)Senior Management and other Employees of the Company to have diversi ed Board toharmonize the aspirations of human resources consistent with the goals of the Company andin terms of Section 178 of the Companies Act 2013 and Regulation 19 of Securities andExchange Board of India (Listing Obligations and Disclosure Requirements) Regulations2015 and as amended from time to time and Rules/Regulations/Guidelines/Noti cations issuedby Securities and Exchange Board of India (SEBI) from time to time this policy onnomination and remuneration of Directors Key Managerial Personnel and Senior Managementwhich includes within its a policy for having a Diversi ed Board and FamiliarizationProgramme for Independent Director has been formulated and approved by the Board ofDirectors vide its meeting dated February 09 2015. The aforesaid policy was last revisedon February 10 2016 in view of enactment of Securities and Exchange Board of India(Listing Obligations and Disclosure Requirements) Regulations 2015. This policy shall actas a guideline for determining inter-alia quali cations positive attributes andindependence of Directors diversi cation of the Board matters relating to theremuneration appointment removal and evaluation of performance of the Directors KeyManagerial Personnel Senior Management and other Employees of the Company. The Companyshall periodically conduct familiarization Programme for the Independent Directors theirroles rights responsibilities in the Company nature of the industry in which theCompany operates business model of the Company etc. The details of such familiarizationprogrammes is disclosed on the Company's website i.e. www.satincreditcare.com.

Corporate Social Responsibility Policy:

Your Company has recognized importance of "Corporate SocialResponsibility" (hereinafter referred to as 'CSR') therefore it has videresolution passed in its Board Meeting dated May 26 2014 has constituted the CorporateSocial Responsibility Committee. During the year under review CSR Committee vide itsmeeting dated November 07 2016 again reviewed and adopted the CSR policy with requiredmodi cation. The Board of Directors of the Company adopted revised CSR policy on November09 2016 pursuant to the requirement of Section 135(1) & (3) of the Companies Act2013 along with The Companies (Corporate Social Responsibility Policy) Rules 2014 asamended from time to time. In the aforesaid backdrop policy on Corporate SocialResponsibility of the Company is broadly modi ed taking into account the welfare measuresfor the community at large so as to ensure the poorer section of the society deriving themaximum benefits. It also aims to contribution to the society at large by way of socialand cultural development healthcare imparting education training and social awarenessespecially with regard to the economically backward class for their development andgeneration of income to avoid any liability of employment. With a vision of transformingthe lives of people from socially weaker and economically disadvantaged sections ofsociety the Company is committed to 'building possibilities' to enable them to improve bysupporting them through programs in the domains of education healthcare and environment.As a part of its commitment to Corporate Social Responsibility during the year yourCompany initiated projects for health improvement by contributing to eligible trust andother agencies.

During the year under review your Company has spent Rs.1.05 Crores on CSRprojects/programs. Your Company is in compliance with the statutory requirements in thisregard.

Risk Management Policy:

The Company has framed a policy as required under Securities and Exchange Board ofIndia (Listing Obligations and Disclosure Requirements) Regulations 2015 to evaluate andmonitor company risks and develop comprehensive strategy to mitigate various type of risksand take corrective actions in order to prevent adverse events. The risks involved areFinancial Risks Operational Risks and External Risks. The Internal Audit Team directlyreports to the Audit Committee of the Company. Signi cant audit observations and follow upactions thereon are also reported to the Audit Committee. The Audit Committee reviewsadequacy and effectiveness of the Company's internal control environment and monitors theimplementation of audit recommendations including those relating to strengthening of theCompany's risk management policies and systems.

Related Party Transaction Policy:

Related Party Transaction Policy adopted by the Board of Directors of the Company videits meeting dated February 09 2015 pursuant to the compliances under the provisions ofthe Section 188 of the Companies Act 2013 read with Rule 15 of The Companies (Meetings ofBoard and its Powers) Rules 2014 and Regulation 23 of SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015. However same was reviewed and approved by theBoard on February 10 2017 to enhance the objective behind framing the policy and toensure that Related Party Transactions are managed and disclosed in accordance with thestrict legal and accounting requirements to which the Company is subject.

All Related Party Transactions shall require approval of Audit Committee and saidCommittee will review and may amend this policy from time to time. The policy on RelatedParty Transaction is posted on the website of the Company i.e. www.satincreditcare.com.

Sexual harassment policy for women under The Sexual Harassment of Women at workplace(prevention prohibition and Redressal) Act 2013:

Your Company is in compliance with the Sexual Harassment of Women at workplace(Prevention Prohibition and Redressal) Act 2013 and had adopted a Sexual HarassmentPolicy on February 09 2015 which ensure a free and fair enquiry process with cleartimelines. Your Directors further state that during the year under review there were nocases led pursuant to the Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013.

MANAGEMENT DISCUSSION AND ANALYSIS

Overview

Your Company is the fourth largest micro finance institution in terms of Gross LoanPortfolio (GLP) as on December 31 2016 (Source: MFIN Micrometer Dec 2016)) with a strongpresence in 16 states. As of March 31 2017 your Company had 618 branches andapproximately 2298007 active clients compared to 431 branches and 1851113 activeclients as of March 31 2016 a growth of 48 % and 24% respectively. Satin started itsoperations in 1990 as a provider of individual and small business loan and savingsservices to urban shopkeepers. The Company was registered as an NBFC with the RBI in 1998and converted into an NBFC-MFI in November 2013. The business of your Company isprimarily based on the joint liability group model of lending ("JLG Model")for providing collateral free microcredit facilities to economically active women in bothrural and semi-urban areas who otherwise have limited access to mainstream financialservice. The Company also offer loans to individual businesses loans to micro small andmedium-sized enterprises ("MSMEs") product loans for financing purchaseof solar lamps and loans for development of water connection and sanitation facilities.The Company has incorporated a wholly owned subsidiary in the name of "Satin HousingFinance Limited" ("SHFL"). SHFL is in the process of ling anapplication with the 'National Housing Bank' ("NHB") for registration tocommence business relating to housing finance.

Resources and Liquidity

From scal 2016 to 2017 the Company has its (i) total income increased from Rs. 558.52Crores to Rs. 776.67 Crores a growth of 39.06%; (ii) profit after tax from continuingoperations decreased from Rs. 57.94 Crores to Rs. 24.50 Crores a decline of 57.71% (iii)net worth increased from Rs. 324.01Crores to Rs. 662.22 Crores a growth of 104.38%. YourCompany's funding requirement has increased with the growth of its business. Its totalborrowings increased by 40% from Rs.2748.32 Crore as on March 31 2016 to Rs. 3855.35Crore as on March 31 2017. Satin meets its funding requirements through a diverse set ofsources which includes Loans from Banks and Financial Institutions Non-ConvertibleDebentures External Commercial Borrowings Commercial Papers and other Sub-Debts. Satinhas also securitized some of its future receivables resulting in a reduction in its debtservicing cost. Satin's capital needs have also been supplemented by equity infusions andthe Company has raised several rounds of Equity Capital with the continued support of itsexisting and new investors. Satin's continued business growth liquidity and Profitabilitywill depend on its ability to obtain adequate funding on acceptable terms from relativelystable and cost-effective sources of funds which in turn depends on its financialperformance capital adequacy levels credit ratings and relationships with lenders andinvestor. An event of default a significant negative ratings action by a rating agencyan adverse action by a regulatory authority or a general deterioration in prevailingeconomic conditions that constricts the availability of credit may increase Satin's costof borrowings and make it dif cult for the Company to access financing in a cost effectivemanner.

Nature of Business

Your Company's operations are spread across 16 states and union territories in Indiaincluding Uttar Pradesh Bihar Madhya Pradesh Punjab Uttarakhand Rajasthan HaryanaMaharashtra Delhi and NCR Jharkhand Chhattisgarh Gujarat West Bengal Jammu andKashmir Himachal Pradesh and Chandigarh with a focus on rural and semi urban areas.Satin has adopted a client centric operations methodology that involves direct contactwith clients through group trainings and various meetings of group members with centerleader which occur at regular intervals. The Company's operations methodology alsoincludes various pre-Defined criterions for area selection village selection and clientselection which we believe helps us mitigate and minimize our operational risks. It hasbeen our strategy to maximize our reach to financially excluded population which weintend to achieve with the support of our technology-enabled business model. As a part ofour effort to improve ef ciency and reduce business risks we are moving towards cashlesscollections in partnership with ItzCash a payment solutions company.

Your Company has recently acquired TSL as subsidiary pursuant to a special resolutionpassed by the shareholders on July 30 2016. TSL acts as a business correspondent forbanks and provides similar services to other financial institutions in rural andsemi-urban areas. As on March 31 2017 TSL has 155 branches across Madhya PradeshGujarat Bihar Rajasthan Chhattisgarh Maharashtra Punjab and Uttar Pradesh. As onMarch 31 2017 TSL has provided services in respect of outstanding gross loansaggregating to Rs.449.76 Crores. TSL has partnered with four private sector banks and twoNBFCs to provide such services and seeks to expand its association with other banks andfinancial institutions.The Board of Directors of the Company vide its approval throughcirculation on August 30 2016 allotted 1087456 Equity Shares of Rs. 10/- each at anissue price of Rs. 457.82 per share including premium of Rs. 447.82 per share onpreferential basis to persons and entities belonging to promoter and non-promoter grouppursuant to swap of shares of the Company to the shareholders of M/s Taraashna ServicesLimited in accordance with the provisions of Chapter VII of SEBI (ICDR) Regulations 2009.

Further the Company has significantly increased its branch network and intends tocontinue adding new branches during the current financial year. Company's total branchesincreased form 431 in scal 2016 to 618 in scal 2017 a growth of 48%. Company's currentoperations are focused in certain regions in India namely Uttar Pradesh Madhya PradeshBihar and Punjab. Your Company intends to further increase its penetration in some ofthese regions as well as expand in other states in India where it historically had nooperations. Such further expansion will increase the size of its business as well as thescope and reach of its operations and will involve some start-up costs to establish suchbranches.

As of March 31 2017 Satin's long term borrowing was Rs. 2020.12 Crores and shortterm borrowing was Rs. 167.56 Crores compared to long term borrowing of Rs. 1333.49Crores and short term borrowing of Rs. 144.71 Crores as of March 31 2016. Totalborrowings of the Company as at March 31 2017 include subordinate debt of Rs. 249 Crorescompared to subordinate debt of Rs. 162.22 as of March 31 2016.

In over 26 years of operation Satin has developed partnerships with over 77 publicsector banks private sector banks foreign banks and other domestic and overseasfinancial institutions. During the year the Company has been availing various creditfacilities from Banks domestic and international lenders and from institutions for itsmicro finance operation which is the main activity of the Company.

Your Company has also raised Rs. 250 Crores of Equity Capital by way of Quali edInstitutional Placement and had allotted 4529970 Equity Shares of Rs. 10/- each to Qualied Institutional Buyers (QIBs) at an issue price of Rs. 551.88 per Equity Share on October03 2016. In view of expanding business operations and to augment capital base to meetcapital requirement also to maintain resource liquidity your Company also raised Equitycapital by way of Preferential Allotment of Equity Shares Rs. 10/- each to "AsianDevelopment Bank" (ADB) at an issue price of Rs. 416.67 per shares on April 21 2017and simultaneously issue and allot Fully Convertible Warrants to an entity in the PromoterCategory of the Company at an aggregate amount of Rs. 30 Crores at an issue price of Rs.455.45. Further out of entire consideration payable towards Equity Warrants i.e. Rs. 30Crores the Company has received Rs. 75000000/- i.e. 25% of issue price before allotmentof Equity Warrants. Balance 75% shall be infused within 18 months at the time ofConversion of equity warrants.

Credit Analysis and Research Limited (CARE) had upgraded the Long Term FacilitiesRating of SCNL to CARE A- (Care A minus) aggregating Rs.2200 Crores in the month ofOctober 2016. Further in the month of March 2017 the rating was revised to BBB+ attachedwith a negative outlook

The Company has been awarded by the Chamber of Indian Micro Small and MediumEnterprises ("CIMSME") for "MSME Banking & NBFC ExcellenceAwards-2016" as the Best NBFC-MFI (NBFC-MFI Category) and as CSR Initiatives& Business Responsibility Award Runner-up- (NBFC-MFI Category) on January 12 2017.

The overall liquidity and funding position of the Company is comfortable. The Companyhas been regular in repayment to all its lenders and has excellent relationship with allthe financial institutions and banks.

Industry Scenario

The MFIs have built a large distribution network in urban and rural India which theyare leveraging to distribute financial and non- financial products of other institutionsto its members at a cost lower than competition. While these MFIs continue to focus ontheir core business of providing micro-credit services they seek to diversify into otherbusinesses by scaling up certain pilot projects involving fee-based services and securedlending and will gradually convert them into separate business verticals or operate themthrough subsidiaries. The Reserve Bank of India (RBI) has issued a number of circulars andprovided the required regulatory clarity. A major outcome of the guidelines was theinvolvement of credit bureaus to record and monitor the creditworthiness of borrowers.More and more use of Aadhaar as KYC by the industry. RBI had issued license for theformation of SFBs and payment banks to some NBFC-MFI and other entities. We feel thatthere will be more opportunities for NBFC-MFIs in the financial inclusion space.

During Quarter third of the financial year under review Government of India on November8 2016 ceased to recognize Rs. 500 and Rs. 1000 rupee denominated bank notes as legaltender with effect from November 9 2016.

Impact of Demonetisation:

MFI sector adversely affected due to demonetization and due to dependency on cashtransaction. During the year under review your Company has done satisfactorily on allparameters and grown the business considering the challenges posed by demonetisation. Asyour Company is in micro finance business accordingly largely depends on cashtransactions. Due to demonetization there is some negative impact on operations of Companypost demonetization. Although RBI suggested number of measures to minimize the negativeimpact of demonetization and also came up with the noti cation dated December 21 2016 andDecember 28 2016 with respect to provisioning norms which stated that MFIs has permittedto defer the classification of loan as substandard by additional 90 days duringdemonetization period to minimize the impact of the same. This was misinterpreted by thelocal media and by the local agents which led to rumours of loan waivers /re-schedulements and that fuelled by hopes of loan waivers. The overall caps on withdrawalof cash from bank accounts also impacted disbursements and collection. Your Company workedclosely with MFIN Focused Action Task Force and met with the local administration invarious states to help and educate the customers about the MFI industry and to dispel therumours aired. Your Company has also educated the customers and helped them to ll theforms for exchange of old currency notes. The Company has also started disbursements toexisting borrowers from the amount collected and started digitization drive by rolling outTABs across all branches of the Company. Further due to increased negative impact ofDemonetization your company has also initiated cashless collections and disbursement toboost the collection and disbursement during demonetization period and to minimise theoperational cost.

While the Board of your Company feels that in long run demonetisation will be benecial for the growth of the MFI sector and the Country with curbs on corruptions moneylaundering and by ensuring transparency in future there are also many positives for theMFI sector from demonetisation for instances:

- Budgetary boost for the sector : Allocation for MUDRA scheme doubled andSIDBI re financing for unsecured loans at reasonable rates.

- Regulatory clarity : Fear of state intervention for regulated MFIs has beenput to rest - RBI is the sole regulator for companies registered as NBFC-MFIs

- Recognition from Central and State governments for the vital role played by MFIs inproviding timely credit for the rural population

-Funding available for large established players : Debt funding is available atattractive rates as banks are ushed with liquidity

- Greater awareness about the MFI sector : The event resulted in a massiveeducational exercise across all levels and all strata of the society

- Impetus on digitization and cashless transactions to benefit all stakeholders

Business Review

Despite the negative impact of demonetization on company's operations your Company hasdone satisfactorily during the financial year 2016-17. The Company has disbursed 1566341loans totalling Rs. 3593.64 Crores during the year ended March 31 2017 against Rs.3606.11 Crores during the previous year. The net outstanding portfolio (including managedportfolio and net of provisions) as at March 31 2017 is Rs. 3555.98 Crores. Presentlytotal number of branches are 618 as on March 31 2017 as against 431 as on March 31 2016.

Post demonetization from November 09 2016 to March 31 2017 the Company has raisedRs. 1348 Crores through Debt/NCDs including Sub Debt of Rs. 35 Crores.

The Company has an experienced and stable management team and Board of Directors. TheCompany is hopeful of performing well during the current year.

Opportunities

We believe there is significant business opportunity and regulatory push in the areaswith the RBI actively supporting NBFC-MFIs the business correspondent model MSME segmentand affordable housing finance etc. as a means to achieve the objective of financialinclusion for all. We believe there is significant potential for growth in the northcentral and eastern states in India which remain under served by financial institutionsor other MFIs. Our primary strategy is to continue to leverage our experience leadershipposition and presence in these markets where there is substantial need demand andopportunity for micro finance. We intend to expand our reach and operations in the stateswhere we are currently present both by increasing business transacted through existingbranches and by establishing new branches across the north central and eastern regionsof India. Our primary objective is to have diversi ed presence across geographies in Indiawith significant growth opportunities for micro finance which we believe will allow us tomaintain stable and sustainable growth of our business and mitigate political andstate-speci c risks. In addition our focused expansion in regions with limitedavailability of financial services will enhance financial inclusion and have a positivesocial impact thereby creating goodwill for our Company which we believe will furtherour growth. We will continue to evaluate opportunities for alliances collaborations andpartnerships that meet our strategic and financial return criteria and to strengthen ourportfolio of product.

Challenges

While the regulatory environment has improved the stakeholder's con dence stillcontinue to be exposed to inherent risks in business model. During Quarter third of thefinancial year under review Government of India on November 8 2016 ceased to recognizeRs.500 and Rs.1000 rupee denominated bank notes as legal tender with effect from November9 2016. Due to this there is de-growth in loans by 5% in terms of volumes and 7% interms of values compared with the Second Quarter of FY 2016-17 and significant downfall indisbursements also (by 48% in terms of volumes and 52% in terms of value) in the industryas a whole Source: (Report on Demonetization-MFIN). Although Reserve Bank ofIndia came up with the noti cation dated December 21 2016 and December 28 2016 withrespect to provisioning norms which stated that MFIs has permitted to defer theclassification of loan as substandard by additional 90 days during demonetization period.Given that the micro finance borrowers belong to low income segment customers are moreprone to default. Moreover with MFI operations concentrated in specific geographiesgeographic concentration risks persist these risks include natural disasters socialunrests or political upheavals. As the Company target to tap the opportunities byentering into new geographical areas the Company encounter with some key challenges withrespect to meeting its expansion plans. Considering changes in state laws and with newpartners in industry opening of new branches and split of existing branches ischallenging task before the management. Further as industry is looking for more partnersin coming time talent acquisition and retention is also one of the major challenges.Training and development for employees and security risk are other potential challenge forthe management. We are in the process of changing the entire technology platform for thecompany by providing tablets to all our field staff. This will bring lot of operational efciency in the system. However; training a large workforce is a challenging task.

Outlook

The overall outlook for the Micro finance Industry has improved during the financialyear 2016-17. There is greater emphasis today on credit score prior to disbursement ofloans and subsequent data sharing with credit bureaus. The credit bureau checks enableMFIs to assess the extent of leverage of prospective customers and their repayment trackrecord. The Micro finance Institutions Network ("MFIN") was of cially recognisedas a self-regulatory organization ("SRO") for NBFC Micro finance Institutions inIndia in June 2014. As an SRO MFIN has been authorised by the RBI to exercise control andregulation on its behalf in ensuring compliance to regulatory prescriptions and theindustry code of conduct. MFIN's role as SRO also includes research and trainingresponsibilities and submission of MFI financials to the RBI. With various schemeslaunched by Government for financial inclusion there is greater opportunities in microfinance sectors in the years to come. The focus of government on digital transaction willhelp in bringing down the operating and administrative cost and in long rundigitalisation in transaction will bring transparency and good governance in financialsystem.

On the regulatory side the Ministry of Corporate Affairs (MCA) vide its noti cationdated February 16 2015 and amendments thereon from time to time provided the road mapfor Companies (Indian Accounting Standards) Rules 2015 ('Ind AS Rules/Ind-AS').For FY 2016-17 Non-Banking Finance Companies (NBFCs) are not required to apply Ind AS.The Company has its applicability from FY 2018-19 with the comparative gures for FY2017-18. The other important reform on indirect tax regime is 'Goods and Service Tax'which will subsume various indirect taxes including central excise duty services taxadditional customs duty surcharges and state-level value added tax. Your Company islooking forward to enhanced challenges and increased opportunity from such regulatoryreforms.

Risk & Concerns

As you may aware that your Company is exposed to financial operational and politicalrisks. Our financial performance is exposed to interest rate risk and an inability tomanage our interest rate expenses may have a material adverse effect on our businessprospects and result of operations. Our micro finance loans are unsecured and thereforeexposed to operational and credit risks. If we are unable to control the levels of ourNPAs in future our financial condition and result of operations may be adverselyaffected. Further our clients mainly consist of low income generating women who areeconomically active and who have limited access to mainstream financial service. While wehave developed an operations methodology pursuant to which we follow specific clientselection criteria and ensure strict adherence to our internally developed risk policyframework our clients may at times not be able to provide us with accurate or completeinformation which may impact our clients sourcing and KYC procedures. Micro finance posesunique risks not generally associated with other forms of lending since it involvestransactions with relatively high risk borrowers and as a result we may experienceincreased levels of nonperforming loans and related provisions and write-offs thatnegatively impact our results of operations. Our clients are typically poor and illiteratewomen who have limited sources of income savings and have limited access to formalbanking channels and therefore may not have any credit history. As a result ourborrowers pose a higher risk of default than borrowers with greater financial resourcesand more established credit history and better access to employment opportunities andsocial services. We have also recently introduced MSME financing and venturing in tohousing finance business through a wholly owned subsidiary for which we do not have pastdata on the borrower's behavior.

While we believe we have adequate risk management controls and have standardizedoperations methodologies to con rm the creditworthiness of clients some of our clientsmay be able to furnish very limited information for us to be able to make accurateassessment. Additionally our Subsidiary TSL in its ordinary course of business hasentered into service agreements with financial institutions and banking companies whichrequire TSL to undertake certain default obligations specified under the terms of theagreements if the borrowers default in payment of loan over a specified number of days. Werequire certain statutory and regulatory approvals and licenses for conducting ourbusiness and an inability to obtain or maintain such approvals and licenses in a timelymanner or at all may adversely affect our operations. The industry in which we operateis highly regulated. Regulations governing us may in future become more stringent andonerous and the changes introduced may adversely affect our business prospects andfinancial performance. An inability to manage our growth or our proposed expansionactivities including new financial products or businesses could disrupt our business andreduce our Profitability. We operate in a highly competitive market and face competitionfrom the organized and the unorganized sector across as well as from state-sponsoredsocial programs which could adversely affect our business prospects and financialperformance. We face significant competition from other MFIs non-MFI NBFCs banks andother financial institutions. Our clients are also prone to borrowing from unregulatedlocal money lenders and non-institutional lenders which may lend at higher rates ofinterest. The cost and availability of capital is dependent among other factors on ourshort-term and long-term credit ratings.

As on March 31 2017 we had a network of 618 branches spread across 16 states andunion territories in India. As a consequence of a large branch network we may also beexposed to certain risks including amongst others:

- difficulties arising from operating a large and multi-location organization;

- difficulties arising from coordinating and consolidating corporate and administrativefunctions;

- delay in transfer of data from various location to the management;

- higher technology support services cost to achieve last mile connectivity andoperational risks including integration of internal controls and procedures;

- failure to efficiently and optimally allocate management technology and otherresources across our branch network;

- failure to manage third-party service providers in relation to any outsourcedservices;

- difficulties in the integration of new branches with our existing branch network;

- difficulties in supervising local operations from our centralized locations;

- difficulties in hiring skilled personnel in sufficient numbers to operate the newbranches locally and management to supervise such operations from centralized locations;

- failure to maintain the level of client service at all branches; and

- unforeseen legal regulatory property labour or other issues

To prepare for these risks Company usually hold in reserve certain percent of assetsin cash and in short-term assets. The Company maintain reserves and provisions in itsfinancials for meeting expected or unexpected future contingencies. The Company follows aconservative financial approach by following prudent business and risk managementpractices.

Your Company is subject to various reporting requirements laid down by RBI includingannual ling of certi cate from the statutory auditor in relation to compliance with theconditions stipulated for an NBFC-MFI quarterly return on branch information reportingon change in directors auditors etc. and other reporting requirement under lawsapplicable to companies in India including under the Indian foreign exchange regulations.We are also required to comply with the directions applicable to systemically importantNBFCs. In recent years existing rules and regulations have been modi ed new rules andregulations have been enacted and reforms have been implemented which are intended toprovide tighter control and more transparency in India's asset finance sector. We believewe are materially in compliance with regulations applicable to our Company as an NBFClisted Company.

Adequacy of internal controls

The Company has proper and adequate internal controls systems to ensure that allactivities are monitored and controlled against any unauthorised use or disposition ofassets misappropriation of funds and to ensure that all the transactions are authorisedrecorded reported and monitored correctly. For the purpose of correctness and accuracythe process of job rotation is followed in different departments. The Company has adequateworking infrastructure having computerization in all its operations including accounts andMIS. The Company is in the process of implementing new technology which will help to haveaccurate and timely information to take informed decisions.

Company's Internal Audit department has an annual audit plan based on the risk pro leof business activities of the organization. The Company has established an Audit Committeeto review and strengthen the adequacy of internal control. The Audit Committee also meetthe Company's Statutory Auditors to ascertain their views on the financial statementsincluding the financial reporting system compliance to accounting policies andprocedures the adequacy and effectiveness of the internal control and systems followed bythe Company. The Management acted upon the observations and suggestions of the AuditCommittee. The Internal Auditors of the Company conduct audit of various departments basedon an annual audit plan covering key area of operations and reviews and evaluates theadequacy and effectiveness of internal controls ensuring adherence to operatingguidelines and systems and recommending improvements for strengthening them.

Human Resource Development

The Company has young capable experienced and dedicated manpower and variousprofessionals support from in house and external sources with expertise in different areasleading the growth of Company towards better operational and financial position. Thenumber of employees as at March 31 2017 stood at 5801 (Previous Year 3864).

DEPOSITS

The Reserve Bank of India in exercise of its powers under The Reserve Bank of IndiaAct 1934 has granted NBFC-MFI (Serial No. B-14.01394) status to the Company and theCompany has no public deposit. The Board of Directors of the Company has passed aresolution that the Company will not accept public deposit during 2017-18.

RESERVE BANK OF INDIA-REGISTRATION AND DIRECTIONS

Your Company has been following all relevant guidelines issued by Reserve Bank of Indiafrom time to time. Further your Company has Capital Adequacy Ratio of 24.14% as on March31 2017. The Non-Banking Financial Company - Micro Finance Institutions (Reserve Bank)Directions 2011 ("NBFC-MFI Directions") were issued in December 2011 by theReserve Bank of India (RBI) pursuant to the Reserve Bank of India Act 1934 ("RBIAct"). The Company satis es these conditions and was re-classi ed as a Non-BankingFinancial Company - Micro Finance Institution ("NBFCMFI") on November 6 2013.As a result the Company is required to comply with the NBFC-MFI Directions. TheseDirections include guidelines on qualifying assets criteria asset classification andprovisioning pricing of credit capital adequacy multiple lending over-borrowingcompliances and fair practices. The Company generally complies all conditions anddirections issued by RBI from time to time.

CORPORATE GOVERNANCE

As required under Regulation 17 to Regulation 27 of SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 and Uniform Equity Listing Agreements executedwith the Stock exchanges a detailed report on corporate governance has been provided in aseparate Section which forms part of this annual report. The Company has complied with therequirements of Corporate Governance that have to be made in this regard. The requisitecerti cate from M/s A. K. Gangaher & Co. the statutory auditors of the companyregarding compliance with the conditions of Corporate Governance as stipulated in ScheduleV of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 is annexedto this report.

PARTICULARS OF EMPLOYEES

In terms of Section 197 (12) of the Companies Act 2013 read with Rule 5 Sub-Rule (1)(2) & (3) of Companies (Appointment & Remuneration) Rules 2014 the necessarydisclosures are annexed as Annexure V with this report.

LISTING WITH STOCK EXCHANGES

The Equity Shares of the Company are listed on Calcutta Stock Exchange (CSE) BSELimited (BSE) and National Stock Exchange Limited (NSE).

In view of 'nil' trading at CSE the Board of Directors of the Company as approved forvoluntary delist from CSE as the continued listing there is not serving any benefit tothe shareholders. It only adds to the cost of the Company in terms of money and efforts.BSE & NSE have large trading volumes and trading turnover. In view of this Board ofDirectors of the Company decided to get the Company delisted from Calcutta Stock Exchangeand continue listing with Nationwide Stock Exchanges i.e. NSE and BSE.

The application for voluntary delisting is pending before CSE.

Your Company has no dues pending with the above said Stock Exchanges.

EXTRACT OF ANNUAL RETURN

In terms of requirement made under Section 92 and Section 134(3)(a) of the CompaniesAct 2013 read with applicable rules of The Companies (Accounts) Rules 2014 extract ofannual return forms part of this Directors' Report and annexed as Annexure VI.

OTHER INFORMATION

Information pursuant to Section 134 of the Companies Act 2013 read with Rule 8(3) (a)& (b) of the Companies (Accounts) Rules 2014 being not applicable and hence not beingdisclosed.

Further Information pursuant to Rule 8(3) (c) of the above said rule is mentionedbelow.

FOREIGN EXCHANGE TRANSACTIONS

Particulars Current Year Previous Year
(Amount in Rs.) (Amount in Rs.)
I Expenditure/Remittances (Outward) in Foreign Exchange
1 Travelling Expenses 6978353.80 4932852.80
2 Fees and Subscription - 566249.00
3 Professional Fee 11316229.30 8684241.00
4 Interest Payment External Commercial Borrowing 35504242.34 33246237.00
5 Principal Payment - External Commercial Borrowing 26412499.58 -
6 Sitting Fees 20000.00 30000.00
7 Business Promotion 256004.00 505420.00
8 Share/ Debenture Issue Expenses 6804618.00 -
Total 87291947.02 47964999.80
II Earning/Remittances (Inward) in Foreign Exchange
Share Application Money/Share Capital Received - 414700000.00
Reimbursement of Expenditure 1317.72 -
Total 1317.71 414700000.00

ACKNOWLEDGEMENTS

Your Directors would like to place on record their gratitude for the cooperationreceived from lenders our valued customers and shareholders. The Board in speci cwishes to place on record its sincere appreciation of the contribution made by all theemployees towards growth of the Company.

For and on behalf of the Board of Directors
Place: Delhi H P Singh
Date: May 26 2017 (Chairman Cum Managing Director)
DIN: 00333754