MANAGEMENT DISCUSSIONS AND ANALYSIS
INDUS FINANCE LIMITED
Your Directors are pleased to present this 27th Annual Report of the Companytogether with the Audited Accounts for the year ended 31st March 2018
FINANCIAL HIGHLIGHTS AND PERFORMANCE (Rs. in Million)
|PARTICULARS ||2017-18 ||2016-17 |
|Income from Operations ||14.44 ||23.41 |
|Other Income ||7.60 ||10.59 |
|Gross Receipts ||22.04 ||34.00 |
|Expenses ||20.64 ||32.66 |
|Depreciation & Amortization ||0.19 ||0.18 |
|Total Expenses ||20.84 ||32.84 |
|PBT ||1.19 ||1.16 |
|TAX ||0.37 ||0.45 |
|PAT ||0.82 ||0.70 |
|Proposed Dividend/Dividend ||Nil ||Nil |
|Proposed Dividend Tax/Dividend Tax ||Nil ||Nil |
|Transfer to Statutory Reserve ||(0.16) ||(0.14) |
During the period under review your Company focused on recovery and selectiveredeployment in secured lending considering the volatile market conditions. As a resultthe total revenue receipts witnessed a drop which is in line with the drop in ourfinancing cost and thereby maintaining the profitability almost at the same level withthat of the FY 2017. With respect to the observation made by the auditors the Companywishes to state that substantial part of the loans are fully secured by immovableproperties. The Company is taking consistent efforts to realise the entire receivables inall the cases before the close of the current financial year. As the management isconfident of realising the entire receivables management does not consider it necessaryto write off any amount. In view of inadequacy of profit your company is not in a positionto recommend dividend for the year under review.
ECONOMIC SCENARIO AND OUTLOOK
India's economic performance during the financial year 2017-18 is worth looking and hasbeen very interesting. The first quarter saw the impact of demonetization settling down;the second quarter saw the introduction of historic landmark Goods & Service Tax(GST) which had initial teething problems that brought in some business uncertainties inthe initial stages.
With the accelerated recognition of stressed assets on account of regulatory normsduring 2017-18 the asset quality problems of the banks peaked in March 2018 and resultedin further additions to gross nonperforming assets (GNPAs) or bad loans. The sharp risein fresh slippages ageing of earlier NPAs because of limited resolution and higherprovisioning on accounts referred for resolution under the Insolvency and Bankruptcy Codepushed up credit provisions and net losses for the sector.
Bank credit growth hit a 20 year low in 2016-17 with Non-Performing Assets (NPAs)reaching almost double digit. India has been ranked fifth on the list of countries withhighest NPAs. Though bank recapitalization efforts are underway the economy needs torecover from the bad loan problem quickly for favourable economic growth in the future.
With the Indian banking sector facing a lot of turbulence over the past few years dueto the burden of Non- performing accounts this scenario has opened up a new perspectivefor the Non-Banking Financial Companies (NBFCs). The self-imposed restriction on liberalcredits & expansion that is apparent the banking sector seems to have thrown upgreater important role to NBFCs to grab the opportunities.
The government has a strong focus on promoting entrepreneurship and therefore they canhelp NBFC sector in the Indian economy to realize their full potential and attain greaterefficiency while performing the duties. The International Monitory Fund [IMF] expectsIndia's economic growth to be around 7.4% in 2018- 19 compared to the estimated 6.7% inthe 2017-18. The IMF adds that with the continued implementation of structural reformsthat raises productivity growth is expected to gradually rise. According to AsianDevelopment Bank Indian economy is estimated to grow 7.4% in 2018-19
As of September 2017 there were 11469 non-banking financial companies (NBFCs)registered with the Reserve Bank of which 172 were deposit-accepting (NBFCs-D). Therewere 220 systemically important non-deposit accepting NBFCs (NBFCs-ND-SI). All NBFCs-D andNBFCs-ND-SI are subjected to prudential regulations such as capital adequacy requirementsand provisioning norms along with reporting requirements. The increasing growth in theNBFC has forced the regulator to introduce additional safeguards to contain the systemicrisks. According to the Financial Stability Report released in 2017 December by theReserve Bank of India Gross Non-Performing Assets [GNPAs] of the NBFC sector as apercentage of total advances increased between March 2017 and September 2017. According tothe report the aggregate balance sheet size of the NBFC sector was at 13.8 trillion inSeptember 2017 expanding by 15.6 percent as compared to 11.9 trillion in September2016.Loans and advances increased by 15.7 percent whereas investments increased by 15.8 percent. In fact in the last two years NBFCs have doubled their market share in SMEs (smalland medium enterprises) and wholesale loans and have made substantial in roads in otherconsumer loan categories.
Introduction of Insolvency & Bankruptcy Code 2016 [IBC] is another milestone inthe resolution of NPAs particularly the corporate sector. Despite sluggish economicgrowth slowdown in demand and sharper bank focus on retail loans NBFCs have been gainingmarket share across major asset classes. Better understanding of their customer segmentsand strong risk management capabilities coupled with effective control on the Bad debts isthe key success of NBFCs in India.
Indian economy is one of the fastest growing G20 economies. Smoother implementation ofthe recently introduced Goods and service Tax (GST) and the timely resolution under themuch-talked Insolvency & Bankruptcy code 2016 will be the key to success and will bemajor growth engine. Fiscal and monetary policies are expected to be neutral exceptmarginal hike in interest rates.
The Government of India has introduced several reforms to liberalize regulate andenhance efficiency of the finance sector. The Government and Reserve Bank of India (RBI)have taken various measures to facilitate easy access to finance for Micro Small andMedium Enterprises (MSMEs). These measures include launching Credit Guarantee Fund Schemefor Micro and Small Enterprises issuing guideline to banks regarding collateralrequirements and setting up a Micro Units Development and Refinance Agency (MUDRA). With acombined push by both government and private sector India is undoubtedly one of theworld's most vibrant capital markets. However rising oil prices and in turn the higherinflation will be a cause of concern for the anticipated growth. Oil is India's biggestimport and an increase in oil prices push inflation up and widen the trade deficitputting pressure on the rupee.
Inflation is expected to be around 5% during 2018-19 compared 3.6 percent in 2017-18.All these will have serious effect on interest rate and Industrial growth.
Non-Banking Financial Companies (NBFCs) have played a critical role in stimulating thegrowth of the Indian economy and have made a significant contribution towards supportingthe government's agenda of extending financial inclusion. In fact they have emerged askey financiers to businesses especially the high-potential credit-hungry MSME sector. Atthe same time NBFCs are subjected to more and more regulatory norms. All NBFCs arerequired to be registered with the Financial Intelligence Unit [FIU] of the country. Therules require a principal officer to be designated and registered with FIU to file returnson a monthly basis for all cash transactions of more than Rs 10 lakhs or equivalent intoforeign currency and all suspicious transactions whether or not made in cash depositscheques transfer from one account to another transfer to nostro or vostro accounts. Suchmove will bring in much anticipated financial discipline in the system.
OPPORTUNITIES & THREATS
The shift in borrower sentiment has unlocked a tremendous opportunity for NBFCs tocapitalize on. In the last two years NBFCs have registered multi-fold growth to doubletheir market share in SME and wholesale loan categories in addition to making significantinroads into other consumer loan categories. Major reason for the success that NBFCs haveregistered in India of late has been their unique value proposition. Most NBFCs whetheronline or offline leverage alternative and tech-driven credit appraisal methodologies togauge the creditworthiness of prospective borrowers. Non-Banking companies have extensivereach as compared to the SCBs of our economy. That is why NBFC's in Indian financialsector provide credit facility for small needs of the unbanked and rural sector of theeconomy. Many government-backed schemes have made it possible for most of the Indianpopulations to have their own bank account but still a large chunk of population of Indiado not use banking facility. These factors have given ample opportunity to the NBFC sectorincrease their market share. As far as recovery is concerned introduction of IBC 2016 hasgiven a better opportunity to all NBFCs who had earlier deprived of the advantage ofSARFEASI Act 2002 [except large NBFCs with asset size more than Rs. 500 crorej.
One of the major threats concerning the NBFC sector is the threat of closure due tofailure to adhere to the regulatory norms. It may also be recalled that NBFC sector isalways a dependent sector within the financial sector the big brother being banking. Pooror slow industrial growth always has adverse effect on the banking sectorwhich in turn hassubstantial influence on the NBFC sector.
RISKS & CONCERNS
Every Financial Institution irrespective of the size is subject to business as well asfinancial risk. While the business risk is more concerned with the operating environmentpolicy decisions falling or deteriorating economy the financial risk is attributed toquality of assets interest rate market liquidity etc Risk is the probability of afinancial loss and not a certainty. In the financial sector majority of such loses isattributed to either Business loss due to policy decision or financial loss due to assetquality. The key then is to be aware of the risk and take adequate steps to mitigate them.Poor risk management has also resulted in frauds in large Institutions. In financialservices business effective risk management has become very crucial. As an NBFC yourcompany is exposed to credit risk liquidity risk and interest risk. Our Company hassuitable mechanisms to effectively reduce such risk.
NUMBER OF MEETINGS OF BOARD
Indus Finance Ltd held 4 Board Meetings during the year ended SI^March 2018. Thesewere on 29th April 201711thAugust201714th November 2017and 13th February 2018.
Ms. Alice Chhikara is retiring in the forth-coming 27th AGM of the companyand being eligible offers herself for re-appointment.
STATEMENT ON DECLARATION GIVEN BY INDEPENDENT DIRECTORS' UNDER SECTION 149 (6) OFCOMPANIES ACT 2013
The Company has obtained declaration from the Independent Directors that they meet thecriteria of Independence as provided in section 149 (6)ofthe CompaniesAct2013.
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to Section 134 (3) (c) and 134 (5) of the Companies Act 2013 the Board ofDirectors hereby state that;
1. In the presentation of the Annual accounts applicable standards have been followedand there are no material departures.
2. The Directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company as at 31st March 2018 andprofit for the Company for the year ended 31 stMarch 2018.
3. The Directors have taken proper and sufficient care in the maintenance of adequateaccounting records in accordance with the provisions of the Act for safe guarding theassets of the Company and for preventing and detecting fraud and other irregularities.
4. The Directors have prepared the annual accounts on a going concern basis; and
5. The Directors had laid down internal financial controls to be followed by thecompany and that such internal financial controls are adequate and were operatingeffectively.
6. The Directors had devised proper systems to ensure compliance with the provisions ofall applicable laws and that such systems were adequate and operating effectively.
POLICY FOR SELECTION ANDAPPOINTMENT OF DIRECTORS ANDTHEIR REMUNERATION
The Nomination and Remuneration (N&R) Committee has adopted a Charter which interalia deals with the manner of selection of Board of Directors CEO Managing Director andtheir remuneration. This policy is accordingly derived from the said charter.
1. Criteria of Selection of Non-Executive Directors
a. The Non-Executive Directors shall be of high integrity with relevant expertise andexperience so as to have a diverse Board with Directors having expertise in the fields ofmanufacturing marketing finance taxation law governance and general management.
b. In case of appointment of Independent Directors the N&R Committee shall satisfyitself with regard to the independent nature of the Directors vis-a-vis the Company so asto enable the Board to discharge its function and duties effectively.
c. The N&R Committee shall ensure that the candidate identified for appointment asa Director is not disqualified for appointment under Section 164 of the Companies Act2013.
d. The N&R Committee shall consider the following attributes / criteria whilstrecommending to the Board the candidature for appointment as Director.
i. Qualification expertise and experience of the Directors in their respective fields.
ii. Personal Professional or business standing:
iii. Diversity of the Board.
e. In case of re-appointment of Non-Executive Directors the Board shall take intoconsideration the performance evaluation of the Director and their engagement level.
The Non-Executive Directors shall be entitled to receive remuneration by way of sittingfees reimbursement of expenses for participation in the Board / Committee meetings.
i. A Non-Executive Director shall be entitled to receive sitting fees for each meetingof the Board or Committee of the Board attended by him of such sum as may be approved bythe Board of Directors within the overall limits prescribed under the Companies Act 2013and the Companies (Appointment and Remuneration of Managerial Personnel Rules 2014).
ii. The Independent Directors of the Company shall not be entitled to participate inthe Stock Option Scheme of the Company if any introduced by the Company.
3. CEO Managing Director/Whole Time Director-Criteria for selection/appointment
For the purpose of selection of the CEO Managing Director / Whole Time Director theN&R Committee shall identify persons of integrity who possess relevant expertiseexperience and leadership qualities required for the position and shall take intoconsideration recommendation if any received from any member of the Board.
The Committee will also ensure that the incumbent fulfills such other criteria withregard to age and other qualifications as laid down under the Companies Act 2013 or otherapplicable laws.
4. Remuneration for the CEO Managing Director /Whole Time Director
i. At the time of appointment or re-appointment the CEO Managing Director/Whole TimeDirector shall be paid such remuneration as may be mutually agreed between the Companies(which includes the N&R Committee and the Board of Directors) and the CEO ManagingDirector / Whole Time Director within the overall limits prescribed under the CompaniesAct 2013.
ii. The remuneration shall be subject to the approval of the Members of the Company inGeneral Meeting.
iii. The remuneration of the CEO Managing Director / Whole Time Director comprises ofsalary allowances perquisites amenities and retrial benefits.
5. Remuneration Policy for the Senior Management Employees
In determining the remuneration of the Senior Management Employees (i.e. KMPs andExecutive Committee Members) the N&R Committee shall ensure / consider the following:
i. The relationship of remuneration and performance benchmark is clear;
ii. The remuneration component comprising salaries perquisites and retirementbenefits;
iii. The remuneration including annual increment is decided based on the criticality ofthe roles and responsibilities the Company's performance vis-a-vis the annual budgetachievement.
iv. N&R Committee will carry out the individual performance review based on thestandard appraisal matrix and shall take into account the appraisal score card and otherfactors whilst recommending the annual increment.
A qualified and independent Audit Committee of the Board of the company is functioning.It monitors and supervises the Management's financial reporting process with a view toensure accurate and proper disclosure transparency and quality of financial reporting.The committee reviews the financial and risk management policies and also the adequacy ofinternal control systems and holds discussions with Statutory Auditors and InternalAuditors. This is enhancing the credibility of the financial disclosures of the companyand also provides transparency.
The company continued to derive immense benefit from the deliberation of the AuditCommittee comprising of Niranjan R. Jagtap Mr. Bala V. Kutti and Dr. K.R. Shyamsundar whoare highly experienced and having knowledge in project finance accounts and company law.Mr. Nirajan R. Jagtap is the Chairman of the Audit Committee. The Company Secretary actsas the Secretary of the Audit Committee.
THE RATIO OF THE REMUNERATION OF EACH DIRECTOR TO THE MEDIAN REMUNERATION OF THEEMPLOYEES OFTHECOMPANYFORTHE FINANCIAL YEAR 2017-18ARE GIVEN BELOW
|Name of the Directors ||Ratio to Median Employee remuneration |
|Mr. Bala V Kutti - Executive Chairman ||7.85 |
|Dr. K.R. Shyamsundar - Independent Director ||0.19 |
|Mr. Niranjan R Jagtap-lndependent Director ||0.19 |
|Ms. Alice Chhikara - Non Executive Director ||0.13 |
THE PERCENTAGE INCREASE IN REMUNERATION OF DIRECTORS KMP AND MEDIAN EMPLOYEE FORTHEFINANCIAL YEAR 2017-18
There is no increase in remuneration to the Directors KMP during the financial year2017-18.
DETAILS OF DIRECTORS OR KEY MANAGERIAL PERSONNEL WHO WERE APPOINTED OR HAVE RESIGNEDDURING THE YEAR
There is no appointment or resignation of Directors and Key Managerial Personnel of theCompany during the under review.
INDUSTRIAL RELATIONS AND PARTICULARS OF EMPLOYEES
As of 31st March 2018 Your Company has 8 employees on its rolls. Theemployees will be inducted in to permanent services of the Company after training to fillup vacancies as when arises. Your company has not issued any shares under Employees' Stockoption Scheme during the year under review.
VARIATIONS IN THE MARKET CAPITALISATION OF THE COMPANY PRICE EARNINGS RATIO AS AT THECLOSING DATE OF THE CURRENT FINANCIAL YEAR AND PREVIOUS FINANCIAL YEAR.
|Particulars ||March 312018 ||March 312017 ||% Change |
|Market Capitalization (Rs.) ||124524135/- ||131930775/- ||(4.38%) |
|Price earnings ratio ||149.44 ||178.125 ||16.10% |
PERCENTAGE OF INCREASE OR DECREASE IN THE MARKET QUOTATION OF THE SHARES IN COMPARISONTO THE RATE AT WHICH THE COMPANY CAME OUT WITH THE LAST PUBLIC OFFER
Price of public offer Rs. 30/-. Market price as on 31.03.2018 Rs. 13.45 difference(Rs. 16.55)(55.16%)
THE KEY PARAMETERS FOR ANY VARIABLE COMPONENT OF REMUNERATION AVAILED BYTHE DIRECTORS
THE RATIO OF THE REMUNERATION OF THE HIGHEST PAID DIRECTOR TO THAT OF THE EMPLOYEES WHOARE NOT DIRECTORS BUT RECEIVE REMUNERATION IN EXCESS OF THE HIGHEST PAID DIRECTOR DURINGTHE YEAR
LIST OF EMPLOYEES WHO ARE IN RECEIPT OF REMUNERATION MORE THAN THE STIPULATED AMOUNTMENTIONED UNDER RULE 5 (2) OF COMPANIES (APPOINTMENT AND REMUNERATION) RULES2014
AFFIRMATION THAT THE REMUNERATION IS AS PER THE REMUNERATION POLICY OF THE COMPANY
The Company affirms remuneration is as per the remuneration policy of the Company.
Your Company has complied with the requirements regarding Corporate Governance asrequired under SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015entered in to with the Stock exchanges where the Company's shares are listed. A Report onthe Corporate Governance in this regard is made as a part of this Annual Report and acertificate from the Auditors of Your Company regarding compliance of the conditions ofthe Corporate Governance is attached to this report.
LISTING OF EQUITY SHARES
Your Company's equity shares are continued to be listed on the Bombay Stock ExchangeLtd Mumbai during the year under review.
PARTICULARS OF LOANS GUARANTEE OR INVESTMENTS:
Detailed information is provided in respect of loans under long term loans and advancesin Note No.9 of Notes forming part of the financial statements similarly detailedinformation is provided under Non-Current Investments in Note No. 8 of Notes forming partof the financial statements. As regards guarantee the Company has not provided anyguarantee to any person or Bodies Corporates.
BUSINESS RISK MANAGEMENT:
The Company has developed a Risk Management Policy by identifying the elements of riskwhich are mentioned below. The risk management approach at various levels includingdocumentation and reporting seeks to create transparency minimize adverse impact on thebusiness objectives and enhance the company's competitive advantage.
The Business risk is associated with operating environment ownership structureManagement System & Policy and Corporate Governance.
The Financial risk lies in Asset Quality Liquidity Profitability and CapitalAdequacy IFL recognizes these risks and makes best effort to mitigate them in time.
One of the major concerns for the sector is the deteriorating asset quality in thebanking sector which has certain indirect impact on the asset qualities of NBFCs also. Anynegative growth of the industry irrespective of the sector has some adverse effect on theworkings of the NBFCs. IFL has always kept in mind the uncertainties and their mitigationwhile conducting the business.
Pursuant to the provisions of the companies Act 2013 and Schedule V of SEBI (ListingObligation and Disclosure Requirements) Regulations 2015 the Board has carried out anannual performance evaluation of its own performance the directors individually as well asthe evaluation of the of its Audit nomination and remuneration and compliance committees.The manner in which the valuation has been carried out has been explained in the CorporateGovernance report.
During the year under review the company has not accepted any deposits from the publicwithin the ambit of section 73 of the companies Act 2013 and The companies (Acceptance ofDeposits) Rules 2014.
There is no significant / material order passed by the Judicial / Regulatoryauthorities during the year under review.
DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY ANY COURTS DURING THE UNDERREVIEW:
WHISTLE BLOWER POLICY
The Company has a whistle blower policy to deal with instance of fraud andmismanagement if any. The detail of the policy is explained in the Corporate GovernanceReport and posted on the website of the company.
FINANCIAL STATEMENTS OF THE SUBSIDIARY COMPANY IF ANY
M/s.V.Ramaratnam & Co. retires at the conclusion of this Annual General Meeting andare eligible for reappointment.
As provided in Sec 92 (3) of the Act a copy of the annual return is available on thewebsite of the company and the web-linkof such annual return ishttp://www.indusfinance.in/iflannualreturn2017-18.pdf
TRANSACTIONS WITH RELATED PARTIES
Detailed information is provided with respect to the list of Related Parties andtransactions with them are provided in note No. 17.4 of Notes forming part of thefinancial statements and also in Form No. AOC-2 underAnnexure (I).
Mr. R. Kannan PCS is Secretarial Auditor of the company for the year under review andhis report is attached with this report Form No. MR-3 under Annexure (II). As regards tothe observation of the Secretarial Auditor in his report your company wish to state thatthe company is taking all initiatives on improvising policies related to RPT updatewebsite and Form MGT-14 will shortly be complied.
ADEQUACY OF INTERNAL CONTROL
Your Company has effective and adequate internal control systems in combination withdelegation of powers. The control system is also supported by internal audits andmanagement reviews with documented policies and procedures.
M/s. S. Vasudevan & Associates are the Internal Auditors who continuously monitorand strengthen the financial control procedures in line with the growth operations of theCompany.
PARTICULARS REQUIRED UNDER SECTION 134 OF THE COMPANIES ACT 2013 AND ITS COMPANIES(ACCOUNTS) RULES 2014
The particulars required to be given in terms of section 134 of the Companies Act 2013and Companies (Accounts) Rules 2014 regarding conservation of Energy TechnologyAbsorption Foreign Exchange Earnings and Foreign Exchange outgo are not applicable toyour Company.
The Directors wish to place on record their sincere thanks and gratitude to all itsShareholders Bond holders Bankers State Governments Central Government and itsagencies statutory bodies suppliers and customers for their continued co-operation andexcellent support extended to the Company from time to time.
Your Directors place on record their utmost appreciation for the sincere and devotedservices rendered by the employees at all levels.
| ||FOR AND ON BEHALF OF THE BOARD OF |
| ||INDUS FINANCE LTD. |
|Place: Chennai - 600 034 ||Niranjan R Jagtap |
|Date: 30th May 2018 ||Director |