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Bajaj Finance Ltd.

BSE: 500034 Sector: Financials
NSE: BAJFINANCE ISIN Code: INE296A01024
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VOLUME 359497
52-Week high 4923.20
52-Week low 2083.00
P/E 30.07
Mkt Cap.(Rs cr) 153,467
Buy Price 2550.55
Buy Qty 52.00
Sell Price 2550.55
Sell Qty 69.00
OPEN 2390.00
CLOSE 2333.00
VOLUME 359497
52-Week high 4923.20
52-Week low 2083.00
P/E 30.07
Mkt Cap.(Rs cr) 153,467
Buy Price 2550.55
Buy Qty 52.00
Sell Price 2550.55
Sell Qty 69.00

Bajaj Finance Ltd. (BAJFINANCE) - Director Report

Company director report

Your directors have pleasure in presenting the thirty-second Annual Report along withthe audited standalone and consolidated financial statements for FY2019.

Presentation of financial statements

Ministry of Corporate Affairs (MCA) vide its notification dated 30 March 2016mandated Non-Banking Financial Companies (NBFCs) having net worth of rupees five hundredcrore or more to comply with the Indian Accounting Standards (Ind AS) in preparation oftheir financial statements and quarterly financial results for the accounting periodsbeginning on or after 1 April 2018 with effective transition date of 1 April 2017.

Further MCA has amended Schedule III to the Companies Act 2013 (the ‘Act‘).Vide the amendment a new division viz. ‘Division III' financial statement formathas been introduced for NBFCs effective 11 October 2018.

Accordingly the financial statements of the Company for the year ended 31 March 2019have been prepared in accordance with Ind AS and revised Schedule III to the Act. Thecorresponding figures for the year ended 31 March 2018 and opening Balance Sheet as on 1April 2017 have been recast as per Ind AS and revised Schedule III to the Act. The Companyhas applied Ind AS 101 ‘First time adoption of Indian Accounting Standards' fortransition from previous GAAP to Ind AS. An explanation of how transition to Ind AS hasaffected the previously reported financial position financial performance and cash flowsof the Company is detailed in the note no. 51 to the standalone financial statements andnote no. 52 to the consolidated financial statements of the Company.

The audited consolidated financial statements have been prepared in compliance with theAct Ind AS 110 ‘Consolidated financial statements' and the Securities and ExchangeBoard of India (Listing Obligations and Disclosure Requirements) Regulations 2015 (the‘Listing Regulations').

A separate statement containing the salient features of its subsidiaries in theprescribed Form AOC–1 is attached to the standalone financial statements.

Financial results

The highlights of the standalone financial results are as under:

(##Rs## In Crore)

% change

Particulars

FY2019

FY2018

over FY2018

Total income

17401

12650

38

Finance costs

5939

4567

30

Net interest income

11462

8083

42

Total operating expenses

3951

3226

22

Pre-provisioning operating profit

7511

4857

55

Impairment on financial instruments

1476

1026

44

Profit before tax

6035

3831

58

Profit after tax

3890

2485

57

Retained earnings as at the beginning of the year

4788

3076

56

Profit after tax

3890

2485

57

Other comprehensive income on defined benefit plan

(9)

(5)

80

Retained earnings before appropriations

8669

5556

56

Appropriations
Transfer to reserve fund u/s 45-IC(1) of the RBI Act 1934

(779)

(530)

47

Dividend paid

(231)

(198)

17

Tax on dividend

(48)

(40)

20

Adjustment of dividend to ESOP Trust

1

1

Retained earnings as at the end of the year

7612

4788

59

Due to rounding off numbers presented in above table may not add up precisely to the totals provided.

 

A summary of financial performance of subsidiaries viz; Bajaj Housing Finance Ltd. and Bajaj FinancialSecurities Ltd. is given below:

Subsidiaries associate and joint ventures

A. Bajaj Housing Finance Ltd. (BHFL) - A housing finance company registered withNHB.

BHFL a wholly owned subsidiary of the Company started full scale mortgage operations from February2018 and had assets under management of H 17562 crore as on 31 March 2019 as against H3570 crore as on 31 March 2018. The Profit after tax for FY2019 of BHFL was

H 110 crore as against H 10 crore for FY2018.

B. Bajaj Financial Securities Ltd. (Bfinsec) – A stock broking companyregistered with SEBI.

The Company acquired the entire shareholding of Bfinsec from its wholly ownedsubsidiary BHFL on 10 August 2018 at arm's length pricing. The acquisition is intended tosupport the Company's existing line of business viz; loan against securities where theCompany currently avails services of other depository participants (DP) and stock brokers.

During FY2019 Bfinsec received approval from SEBI to carry on the business as a stockbroker and trading membership of BSE Ltd. Bfinsec is in the nascent stage of stock brokingand DP business.

The Profit after tax for FY2019 of Bfinsec was H 1.19 crore as against H 1.67 crore forFY2018.

None of the subsidiaries mentioned above is a material subsidiary as per the thresholdslaid down under the Listing Regulations.

The Company does not have any associate or joint venture company.

Performance and financial position of subsidiaries

A summary of financial performance for FY2019 of the wholly owned subsidiaries i.e.BHFL and Bfinsec is given below:

BHFL

(##Rs## In Crore)

Particulars

FY2019

FY2018

Total income

1150

106

Finance costs

685

47

Net interest income

465

59

Total operating expenses

297

44

Impairment on financial instruments

25

4

Profit before exceptional items

143

11

Exceptional items

6

Profit before tax

149

11

Profit after tax

110

10

Other comprehensive income

(2)

Total comprehensive income

108

10

Bfinsec

(##Rs## In Crore)

Particulars

FY2019

FY2018

Total income

2

1

Finance costs

-

Net interest income

2

1

Total operating expenses
Impairment on financial instruments

-

-

Profit before tax

2

1

Profit after tax

1

2

 

Dividend

The directors recommend for consideration of the members at the ensuing annual generalmeeting (AGM) payment of dividend of H 6 per equity share (300%) of face value of H 2 forFY2019. The amount of dividend and tax thereon aggregate to H 419.46 crore.

Dividend paid for FY2018 was H 4 per equity share (200%) of face value of H 2. Theamount of dividend and tax thereon aggregated to H 278.71 crore.

Share capital

As on 31 March 2019 paid–up share capital of the Company stood at H 1155936776consisting of 577968388 equity shares of face value of H 2 fully paid–up.

Increase in borrowing powers

During FY2019 pursuant to section 180(1)(c) of the Act the Company increased thelimit of the borrowing powers of the Board of Directors from H 100000 crore to H 130000crore to meet its growing business needs.

Working results

Assets Under Management (AUM) as on 31 March 2019 were H 98671 crore as compared to

H 78852 crore as on 31 March 2018 an increase of 25% over the previous year. Theconsolidated AUM as on 31 March 2019 stood at H 115888 crore an increase of 41% over theprevious year.

Loans receivables as on 31 March 2019 were H 95181 crore as compared to H 75533 croreas on 31 March 2018 an increase of 26% over the previous year. The consolidated loansreceivables as on 31 March 2019 stood at H 112513 crore an increase of 42% over theprevious year.

Total income during FY2019 increased to H 17401 crore from H 12650 crore duringFY2018 registering a growth of 38% over the previous year.

Profit before tax for FY2019 was H 6035 crore as against H 3831 crore for FY2018 anincrease of 58% over the previous year. The profit after tax for FY2019 was H 3890 croreas compared to H 2485 crore for FY2018 an increase of 57% over the previous year.This has been due to the Company's healthy growth in AUM net interest margin operatingefficiencies and prudent risk management.

The Company again had an excellent year aided by strong volume growth across all itslines of business. During FY2019 the Company launched various new products and variantsto strengthen its business model and continue its growth momentum.

Consequent to transition to Ind AS in FY2019 with transition/effective date of 1 April2017 the Company is required to provide for impairment allowance on its financialinsruments basis expected credit loss (ECL) calculated using empirical portfolioperformance and adjusted for forward looking macroeconomic factors as prescribed by IndAS. The overall provisioning so made continues to be in excess of the extant provisioningnorms of RBI for NBFCs.

The Company's impairment provision (ECL) on financial instrument increased from H 1026crore in FY2018 to H 1476 crore in FY2019 taking into account the increased business. TheCompany ended FY2019 with a net NPA of 0.73%.

Operations

Details regarding the operations of the different products of the Company and the stateof affairs of the Company are covered in the ‘Management Discussion and Analysis'.

Annual return

The extract of annual return as provided under section 92(3) of the Act in theprescribed form MGT-9 is annexed to this Report and is also hosted on the Company'swebsite https://www.bajajfinserv.in/finance-investor-relation-annual-reports

Number of meetings of the Board

Eight meetings of the Board were held during FY2019. Details of the meetings andattendance thereat forms part of the ‘Corporate Governance Report'.

Audit Committee

The composition of the Audit Committee is given in the annexed ‘CorporateGovernance Report'. All recommendations of the Audit Committee were accepted by theBoard.

Directors' responsibility statement

In compliance of section 134(5) of the Act the directors state that:

l in the preparation of the annual accounts the applicable accounting standards havebeen followed alongwith proper explanation relating to material departures; l they haveselected such accounting policies and applied them consistently and made judgments andestimates that are reasonable and prudent so as to give a true and fair view of the stateof affairs of the Company at the end of the financial year and of the profit of theCompany for the financial year 2018-19; l they have taken proper and sufficient care forthe maintenance of adequate accounting records in accordance with the provisions of theCompanies Act 2013 for safeguarding the assets of the Company and for preventing anddetecting fraud and other irregularities; l they have prepared the annual accounts on agoing concern basis; l they have laid down internal financial controls to be followed bythe Company and that such internal financial controls are adequate and are operatingeffectively; and l they have devised proper systems to ensure compliance with theprovisions of all applicable laws and that such systems are adequate and are operatingeffectively.

Declaration by independent directors

The independent directors have submitted a declaration of independence stating thatthey meet the criteria of independence provided under section 149(6) of the Act asamended and regulation 16 of the Listing Regulations.

The Board took on record the declaration and confirmation submitted by the independentdirectors regarding them meeting the prescribed criteria of independence afterundertaking due assessment of the veracity of the same in terms of the requirements ofregulation 25 of the Listing Regulations.

Policy on directors' appointment and remuneration

The Board at its meeting held on 12 March 2019 has revised the sitting fees from H50000 to H 100000 and commission from H 100000 to H 200000 payable per meeting to allnon-executive directors (including independent directors) for meetings of the Board and/orCommittee thereof attended by them on or after 1 April 2019.

The salient features and changes to the policy on directors' appointment andremuneration forms a part of the ‘Corporate Governance Report'. The said policy isplaced on the Company's websitehttps://www.bajajfinserv.in/media/finance/downloads/remuneration-policy.pdf

Particulars of loans guarantees and investments

The Company being a non-banking financial company registered with the RBI and engagedin the business of giving loans is exempt from complying with the provisions of section186 of the Act in respect of loans and guarantees. Accordingly the disclosures of theloans given as required under the aforesaid section have not been made in this Report.

During FY2019 the Company made following significant strategic investments:

l BHFL - an amount of H 2000 crore by subscribing to 2000000000 equity shares ofthe face value of H 10 on rights basis.

l Acquisition of 100% shareholding of BFinsec from its wholly owned subsidiary BHFL byinvesting an amount of H 20.38 crore.

Further the Company was allotted 10534 Series E compulsorily convertible cumulativepreference shares of One MobiKwik Systems Pvt. Ltd. (MobiKwik) on 12 April 2019 againstthe receivables of the Company pursuant to commercial agreement with MobiKwikamounting to H 8.67 crore. The total investment in MobiKwik as on the date of this report isapproximately H 234 crore.

Information regarding investments covered under the provisions of section 186 of theAct is detailed in the financial statements.

Related party transactions

During FY2019 transactions with related parties were entered with the approval of theAudit Committee in line with provisions of the Act and Listing Regulations. The AuditCommittee reviews the said transactions on a quarterly basis.

All related party transactions entered during FY2019 were on an arm's length basis andin the ordinary course of business under the Act and not material under the ListingRegulations. None of the transactions required members' prior approval under the Act orthe Listing Regulations. During FY2019 there were no related party transactions requiringdisclosure under section 134 of the Act.

Pursuant to regulation 23 of the Listing Regulations the Board at its meeting held on12 March 2019 revised the policy on materiality of related party transactions and ondealing with related party transactions providing clear threshold limits for varioustransactions with related parties.

The revised policy is placed on the Company's websitehttps://www.bajajfinserv.in/media/finance/downloads/policy-on-materiality-of-related-party-transactions.pdf and is alsoincluded in the annexed ‘Corporate Governance Report'.

Material changes and commitments

There have been no material changes and commitments affecting the financial positionof the Company which have occurred between the end of the financial year of the Companyand the date of this Report.

Conservation of energy

The Company has taken inter alia following measures to reduce energyconsumption:

l switched from conventional lighting systems to LED lights at most of the branches in metro areas.

l selecting and designing offices to facilitate maximum natural light utilisation.

l use of cloud based virtual servers to increase energy efficiency and data security.

Technology absorption

The details pertaining to technology absorption have been explained in the annexed‘Management Discussion and Analysis'.

Foreign exchange earnings and outgo

During FY2019 the Company did not have any foreign exchange earnings and the foreignexchange outgo amounted to H 35.39 crore (FY2018 - H 31.54 crore).

Risk management

The Board of Directors have adopted a risk management policy for the Company whichprovides for identification assessment and control of risks which in the opinion of theBoard may threaten the existence of the Company. The Management identifies and controlsrisks through a properly defined framework in terms of the aforesaid policy.

Corporate social responsibility

During FY2019 the Company spent H 56.78 crore on corporate social responsibility (CSR)activities as against mandatory expenditure of H 56.59 crore. Detailed information on theCSR policy and CSR initiatives taken during FY2019 and composition of the Committee isgiven in the annexed ‘Annual Report on CSR activities'.

Formal annual evaluation

Information on the manner in which formal annual evaluation has been made by the Boardof its own performance and that of its Committees Chairperson and individual directors isgiven in the annexed 'Corporate Governance Report'.

Directors and key managerial personnel (KMP)

A. Change in Directorate:

i. Appointment/re-appointment of independent directors:

(a) The Board at its meeting held on 12 March 2019 based on the recommendation ofNomination and Remuneration Committee appointed Naushad Forbes and Anami N Roy asadditional directors and independent directors for a period of 5 years with effect from 1 April 2019.

(b) At the aforesaid meeting the Board considering the report of performanceevaluation and based on the recommendation of Nomination and Remuneration Committeere-appointed the following independent directors for a second term as given below:

Name of independent director

Tenure of second term

1. Nanoo Pamnani

Five years w.e.f. 1 April 2019

2. Dipak Poddar

Three years w.e.f. 1 April 2019

3. Ranjan Sanghi

Five years w.e.f. 1 April 2019

4. D J Balaji Rao

Five years w.e.f. 1 April 2019

5. Omkar Goswami

Five years w.e.f. 1 April 2019

6. Gita Piramal

Five years w.e.f. 16 July 2019

 

In terms of the requirement of regulation 17(1A) ofthe Listing Regulations special resolution for appointment/continuation of directorshipin the Company of directors who have attained or will attain the age of 75 years formspart of the notice of the ensuing AGM.

Accordingly resolutions seeking approval of themembers for the aforementioned appointments/re-appointments forms part of notice conveningthe 32nd AGM.

Necessary details regarding their appointment and re-appointment as required under theAct and the Listing Regulations are given in the notice of AGM.

ii. Retirement of independent directors:

D S Mehta and Rajendra Lakhotia had expressed their intention to not continue asindependent directors of the Company for another term due to their other priorities andpre-occupations. Consequently they have ceased to be directors of the Company from theclose of business hours on 31 March 2019. The Board placed on record its appreciation fortheir valuable contribution during their long association with the Company.

iii. Directors liable to retire by rotation:

Rajiv Bajaj director retires by rotation at the ensuing AGM and being eligibleoffers himself for re-appointment. Necessary details for re-appointment as required underthe Act and the Listing Regulations is given in the notice of AGM.

B. Change in KMP:

R Vijay was appointed as Company Secretary w.e.f. 1 October 2018 in place of AnantDamle who retired from the services of the Company on 30 September 2018.

Significant and material orders

During FY2019 no significant and material orders were passed by any regulator or courtor tribunal impacting the going concern status and Company's operations in future.

Internal audit

At the beginning of each financial year an audit plan is rolled out after the same hasbeen approved by Audit Committee. The audit plan is aimed at evaluation of the efficacyand adequacy of internal control systems and compliance thereof robustness of internalprocesses policies and accounting procedures compliance with laws and regulations. Basedon the reports of internal audit function process owners undertake corrective action intheir respective areas. Significant audit observations and corrective actions thereon arepresented to the Audit Committee of Board.

Internal financial controls

The internal financial controls of the Company are commensurate with its size scaleand complexity of operations. The Company has robust policies and procedures which interalia ensure integrity in conducting business timely preparation of reliablefinancial information accuracy and completeness in maintaining accounting records andprevention and detection of frauds and errors.

The internal financial controls with reference to the financial statements wereadequate and operating effectively.

Employee stock option scheme

During FY2019 there has been no change in the Employee Stock Option Scheme 2009 (the ‘ESOPscheme') of the Company. The ESOP Scheme is in compliance with the SEBI (Share BasedEmployee Benefits) Regulations 2014 (the ‘SBEB Regulations').

Disclosures pertaining to the ESOP scheme pursuant to the SBEB Regulations are placedon the Company's websitehttps://www.bajajfinserv.in/finance-investor-relation-annual-reports Grant wise details ofoptions vested exercised and cancelled are provided in the notes to the standalonefinancial statements.

Deposits

During FY2019 the Company accepted public deposits of H 5778 crore. Public depositsoutstanding as at the end of the year aggregated to H 6828 crore. As on 31 March 2019there were five FDs amounting to H 6.67 lakh which had matured and remained unclaimed andinterest on matured deposits amounting to H 2.14 lakh had also remained unclaimed.

Pursuant to provisions of the RBI Act 1934 the Company has created a charge onstatutory liquid assets amounting to H 1029.23 crore in favour of the trustee for FDholders.

During FY2019 the Company accepted inter corporate deposits (ICDs) of H 6364 crore. ICDs outstandingas on 31 March 2019 were H 6365 crore.

Overall deposits outstanding as on 31 March 2019 were H 13193 crore contributing toapproximately 15% of overall borrowings.

During FY2019 there was no default in repayment of deposits or payment of interestthereon.

Credit rating

The brief details of the ratings received from credit rating agencies by the Companyfor its outstanding instruments is given in the annexed ‘General ShareholderInformation'.

RBI guidelines

The Company continues to fulfill all the norms and standards laid down by the RBIpertaining to non–performing assets capital adequacy statutory liquidity assetsetc. As against the RBI norm of 15% the capital to risk-weighted assets ratio of theCompany was 20.66% as on 31 March 2019. In line with the RBI guidelines for assetliability management (ALM) system for NBFCs the Company has an Asset Liability Committeewhich meets monthly to review its ALM risks and opportunities.

The Company is in compliance with the NBFC – Corporate Governance (Reserve Bank) Directions2015.

Harmonisation of different categories of NBFCs

RBI vide its circular dated 22 February 2019 harmonised different categories of NBFCsinto fewer ones on the basis of the principle of regulation by activity rather thanregulation by entity in order to provide greater operational flexibility.

Accordingly the three categories of NBFCs viz. Asset Finance Companies LoanCompanies and Investment Companies have been merged into a new category called NBFC -Investment and Credit Company.

The Company now is categorised as NBFC- Investment and Credit Company.

Statutory disclosures

l A summary of the key financials of the Company's subsidiaries is included in thisAnnual Report. A copy of audited financial statements for each of the subsidiarycompanies will be made available to the members of the Company seeking such informationat any point of time. l The audited financial statements for each of the subsidiarycompanies are available for inspection by any member of the Company at the registeredoffice and at corporate office of the Company during 10.00 a.m. to 12.30 p.m. exceptholidays. l The financial results of the Company are placed on the Company's website https://www.bajajfinserv.in/finance-investor-relations-financial-informationl Details required under the provisions of section 197(12) of the Act read with rule 5(1)of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 areannexed to this Report. l Details required under the provisions of section 197(12) of theAct read with rule 5(2) and 5(3) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 as amended which form part of the Directors' Reportwill be made available to any member on request as per provisions of section 136(1) ofthe Act. l The directors' responsibility statement as required by section 134(5) of theAct appears in a preceding paragraph. l Pursuant to the provisions of the Act no fraudwas reported by auditors of the Companyduring FY2019. l The Company being an NBFC theprovision relating to Chapter V i.e. acceptance of deposit of the Act are notapplicable. Disclosures as prescribed by Non–Banking Financial (Deposit Accepting orHolding) Companies Prudential Norms (Reserve Bank) Directions 2007 and other NBFCregulations have been made in this Annual Report. l Pursuant to RBI MasterDirection-Information Technology Framework for the NBFC sector the Company hasconstituted an IT Strategy Committee to review the IT strategies in line with itscorporate strategies cyber security arrangements and any other matter related to ITgovernance. l The provision of section 148 of the Act are not applicable to the Company.Accordingly there is no requirement of maintenance of cost records as specified undersection 148(1) of the Act. l Cash Flow Statement for FY2019 is attached to the BalanceSheet. l The Company has a policy on prevention of sexual harassment at the workplace. TheCompany has complied with the provisions relating to the constitution of InternalComplaints Committee under Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013. The number of complaints received disposed of andpending during FY2019 is given in the annexed ‘Corporate Governance Report'.

Inclusion in S&P BSE SENSEX

Equity shares of the Company have been included in the S&P BSE SENSEX of BSE Ltd.with effect from 24 December 2018.

Corporate governance

Pursuant to the Listing Regulations a separate section titled ‘CorporateGovernance' has been included in this Annual Report along with the Reports on‘Management Discussion and Analysis' and ‘General Shareholder Information'.

All Board members and Senior Management personnel have affirmed compliance with thecode of conduct for FY2019. A declaration to this effect signed by the Managing Directorof the Company is included in this Annual Report.

The Managing Director and the Chief Financial Officer have certified to the Board withregard to the financial statements and other matters as specified in the ListingRegulations.

A certificate from auditors of the Company regarding compliance of conditions ofcorporate governance is annexed to this Report.

Business responsibility report

Pursuant to the provisions of the Listing Regulations the Company is required to giveBusiness Responsibility Report (‘BRR') in the Annual Report.

As a part of green initiative the BRR for FY2019 has been placed on the Company'swebsite https://www.bajajfinserv.in/finance-investor-relation-annual-reports Physical copyof the BRR will be made available to any members on request.

Secretarial standards of ICSI

The Company has complied with the requirements prescribed under the SecretarialStandards on Meetings of the Board of Directors (SS–1) and General Meetings(SS–2).

Auditors

Pursuant to the provisions of section 139 of the Act S R B C & CO LLP CharteredAccountants (Firm Registration No. 324982E/E300003) were appointed as statutory auditorsof the Company to hold office from the conclusion of the 30th AGM of the Companytill the conclusion of the 35th AGM.

The Audit Report by S R B C & CO LLP for FY2019 is unmodified i.e. it does notcontain any qualification reservation or adverse remark.

Secretarial auditor

Pursuant to the provisions of section 204 of the Act the Board has re-appointedShyamprasad D Limaye practising company secretary (FCS No. 1587 CP No. 572) toundertake secretarial audit of the Company.

A report from the secretarial auditor in the prescribed Form MR-3 is annexed to thisReport. The same does not contain any qualification reservation or adverse remark.

In addition to the above and pursuant to SEBI circular dated 8 February 2019 a reporton secretarial compliance by Shyamprasad D Limaye for the FY2019 has been submitted withstock exchanges. There are no observations reservations or qualifications in the saidreport.

Acknowledgement

The Board of Directors would like to express its gratitude and its appreciation for thesupport and co–operation from its members RBI and other regulators banks financialinstitutions trustees for debenture holders and FD holders.

The Board of Directors also places on record its sincere appreciation for thecommitment and hard work put in by the Management and the employees of the Company andthank them for yet another excellent year.

On behalf of the Board of Directors

Rahul Bajaj Chairman

Pune: 16 May 2019