Your Board of Directors (the "Board") takes pleasure in presenting theFifteenth Annual Report of Bharat Financial Inclusion Limited (the "Company")together with the audited financial statements for the year ended March 31 2018.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
The financial performance of the Company is summarized below:
| ||FY 2018 ||FY 2017 ||Change |
| || || ||(%) |
|Total revenue (Rs. in crore) ||2102.0 ||1727.9 ||21.7% |
|Less: Total expenditure (Rs. in crore) ||1647.2 ||1535.1 ||7.3% |
|Profit Before Tax (Rs. in crore) ||454.8 ||192.8 ||135.8% |
|Profit After Tax (Rs. in crore) ||455.5 ||289.7 ||57.2% |
|Earnings Per Share (EPS) (Rs.) ||32.9 ||21.8 ||50.7% |
|Diluted EPS (Rs.) ||32.6 ||21.6 ||51.1% |
The operational highlights of the Company are summarized below:
|Year ended March 31 ||2018 ||2017 ||Change (%) |
|Number of branches ||1567 ||1399 ||12.0 |
|Number of members (in lakh) ||72.7 ||67.0 ||8.5 |
|Number of employees ||16021 ||14775 ||8.6 |
|Amount disbursed (Rs. in crore) ||18472 ||14666.9 ||25.9 |
|Gross loan portfolio (Rs. in crore) ||12594.4 ||9149.6 ||37.6 |
|Gross loan portfolio* -(Rs. in crore) ||12594.4 ||9149.6 ||37.6 |
*outside Andhra Pradesh and Telangana
The Government of India demonetized Rs.500 and Rs.1000 bank notes effective November 92016. This step was taken with a view to curb financing of terrorism through the proceedsof Fake Indian Currency
Notes and the use of such funds for subversive activities such as espionage smugglingof arms drugs and other contrabands into India and to eliminate menace of black money.However this has severely affected the growth and collection of all MFIs (including theCompany) for almost six months.
As per the Company's provisioning policy for portfolio loans the Company wasconstrained to make provision of Rs.308.4 crore (in addition to the standard provision ofRs.71.8 crore) and consequently the Company had posted a loss of Rs.234.9 crore for thefourth quarter of FY17 and a profit of Rs. 289.7 Crore for FY17. Further theCompany was constrained to make provision of Rs.151.9 crore and consequently posted a lossof Rs.37 crore for the first quarter of FY18.
In view of the Company's unique operating model of extending small ticket size loan tojoint liability group repayable on weekly instalment and various other initiativesundertaken by the Company which included cashless disbursement credit discipline /controlled disbursement the Company's operations started to move towards to normalcy inQ1-FY18 and the Company reported PAT Rs.119.4 crore Rs.162.6 crore and Rs.210.5 crore inthe second third and fourth quarters of FY18 respectively. Further the Company reporteda PAT of Rs.455.5 crore for FY18 as compared to a PAT of Rs.289.7 crore for FY17.
During the year the Company has allotted 1339842 equity shares arising out of theexercise of employees stock options granted to the employees and directors of the Company.
Post allotment of equity shares as aforesaid the issued subscribed and paid-up sharecapital of the Company stands at Rs. 1393211400 (Rupees One Hundred Thirty Nine CroreThirty Two Lakh Eleven Thousand Four Hundred only) comprising of 139321140 (ThirteenCrore Ninety Three Lakh Twenty One Thousand One Hundred Forty) equity shares of Rs.10 eachas on March 31 2018. The Company's
Capital Adequacy Ratio (CAR') as at March 31 2018 was 33.2 % well in excess ofthe mandated 15% and the net worth of the Company as at March 31 2018 was Rs.2998.8crore.
During the year the Company has not raised capital in any other manner.
During the year the Company has redeemed the following Debentures.
- 11.48% Series 1 secured non-cumulative redeemable taxable listed ratednon-convertible debentures of face value Rs.10 lakh each aggregating to Rs.100 crore(1000 Debentures) on April 28 2017;and
- 11.48% Series 2 secured non-cumulative redeemable taxable listed ratednon-convertible debentures of face value Rs.10 lakh each aggregating to Rs. 50 crore (500Debentures) on April 28 2017 and remaining Rs.50 crore (500 Debentures) on October 312017.
Further the Company has redeemed the following balance debentures on May 15 2018:-
- 11.95% Series 3 secured non- cumulative redeemable taxablelisted ratednon-convertible debentures of face value of Rs. 10 lakh each aggregating to Rs 100 crore(1000 debentures); and
- 11.95% Series 4 secured non- cumulative redeemable taxablelisted ratednon-convertible debentures of face value of Rs. 10 lakh each aggregating to Rs 100 crore(1000 debentures)
During the year under review the Company continued to diversify its sources of fundsand raised a sum of Rs.9977.2 crore by way of short-term loans long-term loans andcommercial papers which was 44.6% higher as compared to Rs.6900.2 crore raised duringFY17.
The Company's weighted average cost of borrowing including processing fees (on Balancesheet daily average) reduced to 9.8% in FY18 from 10.9% in FY 17. This reduction wasmainly driven by sustained turnaround and diversification of sources of funding. In linewith the Company's policy of passing on the cost advantages accruing from economies ofscale operational efficiency and reduction in the cost of borrowing to its borrowers therate of interest charged by the Company which is one of the lowest rate among the privatesector Non-Banking Financial Company - Micro Finance Institutions (NBFC-MFIs) on its coreIncome Generating Loans (IGL) remained the same effective since December 2015.
As of March 31 2018 the Company had 72.7 lakh Members including 61.9 lakh Borrowersspread across 1434 branches (all branches in states other than Andhra Pradesh andTelangana) in India with a gross loan portfolio of Rs. 12594.4 crore as compared to Rs.9149.6 crore in FY17.
Please refer Management Discussion and Analysis Report for more information on theCompany's Business Overview.
As on March 31 2018 the Company has unabsorbed losses to the extent of Rs. 303.23crore and in accordance with the Companies Act 2013(CA 2013) Company can declaredividend only after setting of the unabsorbed losses fully against the Profit earned bythe Company. In order to conserve the resources Company to meet its business requirementsthe Company has not declared dividend in FY18.
COMPOSITE SCHEME OF ARRANGEMENT BETWEEN THE COMPANY AND INDUSIND BANK LIMITED:
The Board after evaluating several options for the organic and inorganic growth of theCompany had approved the Composite Scheme of Arrangement ("Scheme") between theCompany IndusInd Bank Limited ("Bank") and the wholly owned subsidiary of theBank (under process of incorporation as on the date of this report)("Subsidiary") and their respective shareholders and creditors under Section230-232 of the CA 2013 subject to receipt of applicable regulatory approvals on October14 2017. The Scheme provides for the voluntary amalgamation of the Company with the Bankand dissolution of the Company without winding up and the consequent issuance of equityshares of the Bank to the shareholders of the Company. The share exchange ratio for theamalgamation of Company with the Bank shall be 639 (six hundred thirty nine) equity sharesof the Bank for every 1000 (one thousand) equity shares of Company.
Pursuant to the Scheme after the amalgamation the business correspondent activities ofthe Company shall be transferred to the Bank and then as a going concern on a slump salebasis from the Bank to the Subsidiary in exchange for the equity shares of the Subsidiaryto the Bank.
In this regard as on date of this report the amalgamation has been approved by theCompetition Commission of India on December 19 2017 and no objection has been issued bythe Reserve Bank of India the National Stock Exchange of India Limited and the BSELimited on March 13 2018 June 1 2018 and June 4 2018 respectively.
The Scheme remains subject to the receipt of approval from the National Company LawTribunal the respective shareholders and creditors of the Company and the Bank.
The amalgamation will provide the following benefits to the amalgamated entity and itsstakeholdes:
1. Combined business would create meaningful value for all stakeholders throughincreased scale wider product diversification lower funding cost stronger balance sheetand ability to synergies across revenue opportunities operating efficiencies andunderwriting efficiencies
2. Materially realizable synergies for the benefit of a large common shareholder baseand stable market perception.
3. Access to a growing customer base and outlets to increase opportunities of variousmain-stream banking products to financially underserved customers in rural India.
4. Deeper reach in low income segment and increased access for the combined customerbase to the Bank's wide array of products and services.
5. Alignment of the mission objectives of both entities on increased financialinclusion.
DIRECTORS AND KEY MANAGERIAL PERSONNEL
Changes in the composition of the Board of Directors
During the year under review no change took place in the composition of the Boardexcept appointment of Mr. Ashish Lakhanpal as a Director by the members at the 14th AGMheld on July 7 2017.
Directors Retiring by Rotation
In terms of provisions of Section 152 of the CA 2013 Mr. Ashish LakhanpalNon-Executive Director shall retire by rotation at the ensuing AGM and being eligibleoffered himself for reappointment.
Declaration of Independence
The Company has received declarations from all Independent Directors of the Companyconfirming that they meet the criteria of independence as prescribed under Section 149(6)of the CA 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations2015 ("SEBI LODR Regulations").
Key Managerial Personnel
As on date of the report Mr. M. R. Rao Managing Director & CEO Mr. AshishDamani Chief Financial Officer and Mr. Rajendra Patil Sr. EVP Legal & CompanySecretary of the Company are the Key Managerial Personnel ("KMP") of theCompany.
During the year under review Mr. K. V. Rao Chief Operating Officer the Company andwas relieved effective January 31 2018.
Details of subsidiary associate and joint venture of the company:
The Company doesn't have any subsidiary associate and joint venture.
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to the requirement under Section 134(3)(c) of the CA 2013 with respect toDirectors'
Responsibility Statement it is hereby confirmed that:
1. in the preparation of the accounts for the year ended March 31 2018 the applicableaccounting standards have been followed and there are no material departures from thesame;
2. the Directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that were reasonable and prudent so as to give a true andfair view of the state of affairs of the Company as at March 31 2018 and of the profit ofthe Company for the year under review;
3. the Directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the CA 2013 for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;
4. the Directors had prepared annual accounts of the Company on a going concern'basis;
5. the Directors had laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and were operatingeffectively; and
6. the Directors had devised proper systems to ensure compliance with the provision ofall applicable laws and that such systems were adequate and operating effectively.
POLICY FOR SELECTION AND APPOINTMENT OF DIRECTORS AND REMUNERATION POLICY
Policy for Selection and Appointment of Directors
In compliance with the provisions of the CA 2013 and SEBI LODR Regulations the Boardon the recommendation of the Nomination and Remuneration Committee ("NRC") hadadopted the Policy for Selection and Appointment of Directors in the year 2015.
The aforesaid Policy provides a framework to ensure that suitable and efficientsuccession plans are in place for appointment of Directors on the Board so as to maintainan appropriate balance of skills and experience within the Board. The Policy also providesfor selection criteria for appointment of directors viz. educational and professionalbackground general understanding of the Company's business dynamics global business andsocial perspective personal achievements Board diversity and payment of remuneration tothe directors of the Company.
NUMBER OF MEETINGS OF THE BOARD OF DIRECTORS
The details of the meetings of the Board of Directors of the Company held during theyear are mentioned in the Corporate Governance Report which is provided separately in thisAnnual Report.
(a) Statutory Auditors
At the Fourteenth Annual General Meeting of the Company held on July 7 2017 themembers approved the appointment of BSR & Associates LLP Chartered Accountants (FRN :116231W / W-100024) as the Statutory Auditors of the Company for a period of fivecontinuous years i.e. from the conclusion of Fourteenth Annual General Meeting till theconclusion of Nineteenth Annual
General Meeting of the Company subject to ratification by the members of the Company atevery annual general meeting till the term of their appointment.
As per the recommendation of the Audit Committee and the Board of Directors of theCompany the proposal for ratification of appointment of BSR & Associates LLP asStatutory Auditors of the
Company is being included in the notice of the ensuing AGM for your approval.
(b) Secretarial Auditors and Secretarial Audit Report
Pursuant to Section 204 of the CA 2013 the Company had appointed BS & CompanyCompany Secretaries LLP as its secretarial auditors to conduct the secretarial audit ofthe Company for FY18.
The Report of Secretarial Auditor for FY18 is annexed herewith as Annexure - I toDirectors' Report.
There are no qualifications reservation or adverse remark made by the Auditors intheir reports save and except disclaimer made by them in discharge of their professionalobligation.
DETAILS OF FRAUDS REPORTED BY THE STATUTORY AUDITORS
During the year under review the Statutory Auditors the Internal Auditors and theSecretarial Auditors of the Company have not reported any fraud as required under Section143(12) of the CA 2013.
PARTICULARS OF LOANS OR GUARANTEES OR INVESTMENTS
Pursuant to the clarification dated February 13 2015 issued by the Ministry ofCorporate Affairs and Section 186(11) of the CA 2013 the provision of Section 134 (3)(g)of the CA 2013 requiring disclosure of particulars of the loans given investments made orguarantees given or securities provided is not applicable to the Company.
RELATED PARTY TRANSACTIONS
All transactions entered into with Related Parties as defined under the
Regulations during the year under review were in the ordinary course of business and atan arm's length pricing basis and do not attract the provisions of Section 188 of the CA2013.
Details of the related party transactions which are exempted according to a proviso toSection 188 of the CA 2013 during FY18 are disclosed in Note 27 of the financialstatements.
The policy on Related Party Transactions as approved by the Board is displayed on thewebsite of the
TRANSFER TO RESERVES
During the year the Company has transferred an amount of Rs.91.1 crore to StatutoryReserve as required (20% of Profit after tax) under Section 45-IC of RBI Act 1934.
MATERIAL CHANGES AND COMMITMENTS IF ANY AFFECTING THE FINANCIAL POSITION OF THECOMPANY
There are no material changes and commitments affecting the financial position of thehas occurred between the end of the financial year of the Company i.e. March 31 2018 andthe date of the Directors' Report.
CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGOUNDER SECTION 134(3)(m) OF THE CA 2013
The provisions of Section 134(3) (m) of the CA 2013 relating to conservation of energyand technology absorption do not apply to the Company. The Company has however usedinformation technology extensively in its operations.
Detailed information on usage of information technology is provided in the ManagementDiscussion and Analysis Report which is provided separately in this Annual Report
During the year under review the Company's earning and outgo in foreign exchangeearning was Nil and Rs.0.54 crore respectively. In connection with the foreign exchangeoutgo you are also advised to refer Note 32 of the financial statements for FY18.
ANNUAL EVALUATION OF THE BOARD
A statement on formal evaluation of the Board is mentioned in the Corporate GovernanceReport which is provided separately in this Annual Report.
RISK MANAGEMENT POLICY
The Board of the Company has adopted the Risk Management Policy based on therecommendation of the Risk Management Committee in order to assess monitor and managerisk throughout the Company.
Risk is an integral part of the Company's business and sound risk management iscritical to the success of the organization.
Detailed information on risk management is provided in the Management Discussion andAnalysis Report which is provided separately in this Annual Report.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
In compliance with Section 135 of the CA 2013 read with the Companies (Corporate SocialResponsibility Policy) Rules 2014 the Company has established the Corporate SocialResponsibility Committee (CSR Committee) in the year 2014 and the composition and functionthereof are mentioned in the Corporate Governance Report.
The Board adopted the CSR Policy formulated and recommended by the CSR Committee andthe same is available on the Company's website.
During FY18 the Company has pursued three (3) CSR Projects viz. Drishti Sanjeevaniand Mental Health awareness programme details thereof are given Report on CorporateSocial Responsibility (CSR) Activities which is annexed herewith as Annexure - II to theDirectors' Report.
During the year under review the Company has not accepted any deposit from the public.
DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS ORTRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANY OPERATIONS IN FUTURE
There are no significant material orders passed by the Regulators Courts or Tribunalswhich would impact the going concern status of the Company and its future operations.
INFORMATION REQUIRED UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE
(PREVENTION PROHIBITION & REDRESSAL) ACT 2013
The Company has a policy against sexual harassment and a formal process for dealingwith complaints of harassment or discrimination. The Company seeks to ensure that all suchcomplaints are resolved within defined timelines. During FY18 the Company has received 15complaints of these 12 complaints have been resolved and 3 complaint were pending as onMarch 31 2018. The Company has conducted 27 workshops/ awareness programs on preventionof sexual harassment.
INTERNAL FINANCIAL CONTROLS
The Company has adequate internal controls and processes in place with respect to itsoperations which provide reasonable assurance regarding the reliability of thepreparation of financial statements and financial reporting as also functioning of otheroperations. These controls and processes are driven through various policies andprocedures.
Detailed information on Internal Financial Controls is provided in the ManagementDiscussion and Analysis Report.
The Company has adopted the Whistle-blower Policy and details of the same areexplained in the Corporate Governance Report. The Policy is also available on theCompany's website.
PARTICULARS OF EMPLOYEES
The ratio of the remuneration of each director to the median employee's remunerationand other details in terms of Section 197(12) of the CA 2013 read with Rule 5(1) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 have beenannexed herewith as Annexure III to the Directors' Report.
The statement containing particulars of employees as required under Rules 5(2) and 5(3)of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 isprovided in a separate annexure forming part of the Directors' Report. In terms of Section136 of the CA 2013 the Directors' Report and the Accounts are being sent to the Membersexcluding the aforesaid annexure and the same is open for inspection at the RegisteredOffice of the Company. A copy of the statement may be obtained by the Members by writingto the Company Secretary of the Company.
MANAGEMENT DISCUSSION AND ANALYSIS
The Management Discussion and Analysis Report for the year under review is presentedseparately in this Annual Report.
The Company has adopted best corporate practices and is committed to conducting itsbusiness in accordance with the applicable laws rules and regulations. The Companyfollows the highest standards of business ethics. A report on Corporate Governance(forming part of Directors' Report) is provided separately in this Annual Report. Duringthe year under review the Corporate Governance Rating of the Company was upgraded fromCGR2 to CGR2+ by ICRA Limited which implies that in ICRA's current opinion the ratedcompany has adopted and follows such practices conventions and codes as would provide itsfinancial stakeholders a high level of assurance on the quality of corporate governance.The +' sign suffixed to the rating symbol indicates a relatively higher standingwithin the category. The Compliance Certificate from BS & Company Company SecretariesLLP regarding compliance of conditions of corporate governance under the SEBI LODRRegulations for FY18 is annexed to the Corporate Governance Report which is providedseparately in the Annual Report.
BUSINESS RESPONSIBILITY REPORT
The Business Responsibility Report for the year under review has been annexed asAnnexure - IV to the Directors' Report.
EMPLOYEE STOCK OPTION PLAN (ESOP) AND EMPLOYEE SHARE PURCHASE SCHEME (ESPS)
Presently stock options have been granted or shares have been issued under thefollowing scheme/ plans :
A. SKS Microfinance Employee Share Purchase Scheme 2007 ("ESPS 2007")
B. SKS Microfinance Employee Stock Option Plan 2008 (Independent Directors) ("ESOP2008 (ID)")
C. SKS Microfinance Employee Stock Option Plan 2008 ("ESOP 2008")
D. SKS Microfinance Employee Stock Option Plan 2009 ("ESOP 2009")
E. SKS Microfinance Employee Stock Option Plan 2010 ("ESOP 2010")
F. Bharat Financial Inclusion Employee Stock Option Plan 2011 ("ESOP 2011")
The disclosures with respect to each of the above-mentioned scheme/plans as requiredby the
Securities and Exchange Board of India (Share Based Employee Benefits) Regulations2014 is displayed on the Company's website http://www.bfil.co.in.
EXTRACT OF ANNUAL RETURN
Pursuant to Section 134 (3)(a) and Section 92 (3) of the CA 2013 read with Rule 12 ofthe Companies (Management and Administration) Rules 2014 an extract of the Annual Returnas at March 31 2018 in form MGT 9 has been annexed as Annexure - V to the Directors'Report.
Your Directors take this opportunity to express their deep and sincere gratitude to theSangam Members for their confidence and patronage as well as to the Reserve Bank ofIndia the Government of India and Regulatory Authorities for their cooperation supportand guidance. Your Directors would like to express a profound sense of appreciation forthe commitment shown by the employees in supporting the Company in its endeavor ofbecoming one of the leading microfinance institutions of the country. Your Directors wouldalso like to express their gratitude to the members bankers and other stakeholders fortheir trust and support.
For and on behalf of the Board of Directors
| ||sd/- ||sd/- |
| ||P. H. Ravikumar ||M. R. Rao |
| ||Non-Executive Chairman ||Managing Director & CEO |
|Date: June 22 2018 ||DIN No.: 00280010 ||DIN No.: 03276291 |