EQUITAS HOUSING FINANCE PRIVATE LIMITED

Transcription

1 EQUITAS HOUSING FINANCE PRIVATE LIMITED 3 rd ANNUAL REPORT

2 CORPORATE INFORMATION Board of Directors Registered Office 1. Rajaraman P V Chairman 2. Meena Ganesh Director 3. Rajan D G Director 4 th Floor, Temple Tower, 672, Anna Salai, Nandanam, Chennai Tel: Fax: corporate@equitas.in Website: 4. Sarabeswar R Director 5. Sarath Naru Director 6. Viswanatha Prasad Subbaraman Nominee Director 7. Vasudevan P N Managing Director Brahmayya & Co Auditors Chartered Accountants 48, Masilamani Road, Balaji Nagar, Royapettah, Chennai Tel: Fax:

3 BANKERS IDBI Bank Limited ING Vysya Bank Limited HDFC Bank Limited State Bank of India Axis Bank Limited 3

4 TABLE OF CONTENTS Directors Report 1 Management Discussion and Analysis 5 Corporate Governance Report 8 Auditors Report 17 Financial Statements 22 4

5 DIRECTORS REPORT TO THE MEMBERS The Directors have pleasure in presenting the Annual Report together with the Audited Accounts of the Company for the period ended 31 st March 2013 (FY ). 1. Overview The Company is a wholly owned subsidiary of M/s. Equitas Holdings Private Limited (EHPL). 2. Financial Results Particulars For the Period ended 31 st March 2013 (Rupees) For the Period ended 31 st March 2012 Gross income 52,141,473 12,743,760 Less: Total Expenditure 62,086,583 59,661,508 (Loss before taxation) (9,945,110) (46,917,748) Provision for taxation - (510,000) Deferred Tax (17,021,444) (278,106) Net Profit (Loss) after taxation 7,076,334 (46,129,642) 3. Dividend The Directors do not recommend any dividend for the year. 4. Operational highlights The details of operations are given in the annexed Management Discussion and Analysis Report. 5. Material changes after the Balance Sheet Date (31 st March 2013) There have been no material changes and commitments between the end of FY and the date of this report, affecting the financial position of the Company. 6. NHB Guidelines The Company has complied with the Guidelines and Directions issued by the NHB on Fair Practices Code, Know Your Customer (KYC), Deposits and Anti Money Laundering and Accounting Standards issued by the ICAI, New Delhi. 1

6 7. Capital Adequacy The capital adequacy ratio was % as on 31 st March The Net Owned Funds (NOF) as on that date was Rs Crores. The minimum capital adequacy requirement stipulated for the Company by NHB is 12%. 8. Corporate Governance Report Clause 49 of the standard listing agreement and the Corporate Governance Report under this clause are not applicable to the Company. Notwithstanding this, a report on Corporate Governance is attached and forms part of the Directors Report. 9. Management Discussion and Analysis The Management Discussion and Analysis Report, highlighting the important aspects of the business is attached and forms part of this report. 10. Directors Ms Meena Ganesh was appointed as Additional Director with effect from 6 th February Appropriate resolution for her appointment is being placed for approval of the shareholders at the ensuing annual general meeting. The Directors recommend her appointment as Director of the Company. Mr D G Rajan retires by rotation this year, and being eligible, offers himself for reappointment. Appropriate resolution for his re-appointment is being placed for approval of the shareholders at the ensuing annual general meeting. The Directors recommend his re-appointment as Director of the Company. 11. Directors Responsibility Statement The Directors Responsibility Statement as required under Section 217(2AA) of the Companies Act, 1956 reporting the compliance with the accounting standards, is attached and forms part of the Directors Report. 13. Auditors M/s Brahmayya & Co., Chartered Accountants, Auditors of the Company retire at the forthcoming Annual General Meeting and are eligible for reappointment. The Company has received a letter from them, stating that the appointment, if made, will be within the prescribed limit under Section 224(1B) of the Companies Act, The Directors recommend the reappointment of M/s Brahmayya & Co., Chartered Accountants, as Auditors for the period from the conclusion of the ensuing Annual General Meeting till the conclusion of the next Annual General Meeting. 14. Information as per Section 217(1) (E) of the Companies Act, 1956 Since the Company does not own any manufacturing facility, the requirement of disclosure of particulars relating to conservation of energy and technology absorption in terms of the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is not applicable. 2

7 15. Foreign Exchange Earnings (on accrual basis) Particulars (Rs) (Rs) Earnings - Grant from International Finance Corporation, USA 54,70,995 4,424,690 Expenditure (Data processing charges) 6, Personnel During the year, there were no employees who were in receipt of remuneration as per the provisions of Section 217 (2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, Acknowledgement The Directors gratefully acknowledge the continued support and co-operation received from the Holding Company i.e., Equitas Holdings Private Limited, Chennai. The Directors thank the Financial Institutions and Banks associated with the Company for their support. The Company s employees are instrumental in the Company s steadily improving performance. Their commitment and contribution is acknowledged. For and on behalf of the Board of Directors Chennai P V Rajaraman 2 nd May 2013 Chairman 3

8 ANNEXURE TO THE DIRECTORS REPORT DIRECTORS RESPONSIBILITY STATEMENT To the best of their knowledge and belief, and according to the information and explanations obtained by them, the Directors confirm the following in terms of Section 217(2AA) of the Companies Act, 1956: that in preparation of the Financial Statements for the Financial Year ended 31st March 2013 the Generally Accepted Accounting Principles (GAAP) of India and applicable Accounting Standards issued by Institute of Chartered Accountants of India have been followed; appropriate Accounting Policies have been selected and applied consistently and judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the Financial Year and of the profit or loss of the Company for that period; that proper and sufficient care for the maintenance of adequate Accounting Records in accordance with the provisions of the Companies Act, 1956 have been taken for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; that the Annual Accounts have been prepared on a going concern basis for the Financial Year ended 31 st March For and on behalf of the Board of Directors P V Rajaraman Chairman P N Vasudevan Managing Director Chennai, 2 nd May

9 MANAGEMENT DISCUSSION AND ANALYSIS Introduction Financial year has been the first full year of operations for this subsidiary. The loan book of the housing finance companies in the Country witnessed a strong CAGR of 20% during FY driven by better demographics, rising affordability levels, affordable interest rates, customized product offerings and real estate activities/ rapid construction. Despite a high interest rate environment in the beginning of FY , the demand for home loans remained robust. This was predominantly on account of rising disposable incomes and continued fiscal incentives on housing. Affordable housing continues to be the focus of many stakeholders be it the Governments, regulators, builders and society at large. Measures on the housing sector in the Union Budget predominantly focused on affordable housing. Affordable housing typically means houses priced between Rs 5 lakhs to Rs 25 lakhs and the demand for this category is large. 66% of the total loans disbursed by HFCs in the Country in FY12 fall in the category of loan amount less than Rs 25 lakhs suggesting most of them belonging to tier I, II and III cities. (Source: CARE Research report on Housing Finance Industry) 1. Equitas Approach Equitas identified the segment of clients from the self-employed non professional category for funding in the affordable housing segment. As this is a relatively new industry segment, there is not much competition from Banks and other established HFCs. However, there are quite a few new players in this sector and the competition may increase over the medium to long-term. Equitas has also identified the top end of the clients of Equitas Micro Finance P Ltd for possible home loan requirements. A pilot was started in a few branches and the initial response has been better than expected. During the FY , the Company would roll this initiative out to about 100 branches of Micro Finance. This initiative would help the company extend long term housing loans to people who are in the EWS and LIG income segment. There are also many policy support provided for loans to this segment such as the interest subvention scheme, loans to economically weaker section and credit guarantee by the Central Government. The Company would be working closely with the Regulator to try and reach these benefits to the ultimate beneficiaries. Lending operations During the year, the Company opened a branch in Bangalore, thus entering to another state apart from Tamil Nadu. The Company started lending against mortgage of the existing property during the last quarter of the financial year. 5

10 The Loan approvals during the year were Rs 42 crores as compared to Rs 12 crores in the last year. Loan disbursements during the year were Rs crores as against Rs 8.20 crores in the previous year. The loan outstanding at the end of the current year were Rs crores as against Rs 8.20 crores of previous year. 2. Financial results The Company posted a net profit after tax of Rs lakhs during the current year as against the net loss of Rs 461 lakhs in the previous year. 3. Capital and Capital Adequacy The Holding Company infused additional capital of Rs 20 crores during the year taking the total paid up capital to Rs 40 crores. the end of year, the Capital to Risk Adjusted Assets (CRAR) was at %. 4. Resources and Treasury During the year, the Company approached CRISIL for rating for the long-term bank loan facilities and CRISIL has assigned its BBB-/Stable for the same which represents moderate safety. During the year, the Company obtained its first bank funding by way of term loan from IDBI Bank Limited for Rs 5 crores followed by another term loan of Rs 5 crores from ING Vysya Bank. The tenor of the term loan is 5 years. 5. Human Resources The Company has provided a wide range of benefits to its employees including health insurance for all employees and their dependents. The Company also provided opportunities to employees to move across business verticals within the Group, through the Career Enhancement Program (CEP). The number of employees as at the end of the year was Risk Management As an HFC, the key risk apart from credit and interest rate risk is the liquidity risk. The Company offered floating rates during the year, moved to a Dual Rate Home Loans in February Under this product, the interest on the home loan is fixed for an initial defined period of 3 years from the date of disbursement and thereafter, it automatically converts to an adjustable rate home loan product, linked to the base rate of the Company. The Company has invested in people, processes and technology to effectively mitigate risks including technical, legal and credit risk posed by the market environment and by its borrowers. 7. Outlook and challenges The Company has studied the operating models of various competitors besides Company s experience of the past year and even though sourcing has been a challenge the Company has had a 6

11 mid-course correction and expects that the current pattern of sourcing should enable the Company to achieve rapid growth. Cautionary Statement Statements in this Management Discussion and Analysis describing the Company s objectives, projections, estimates and expectation may be forward looking within the meaning of applicable laws and regulations. Actual results might differ materially from those expressed or implied. For and on behalf of the Board of Directors Chennai, P V Rajaraman 2 nd May 2013 Chairman 7

12 REPORT ON CORPORATE GOVERNANCE CORPORATE GOVERNANCE PHILOSOPHY The Company s philosophy on Corporate Governance envisages adherence to the highest levels of transparency, accountability and fairness, in all areas of its operations and in all interactions with its stakeholders which are pre-requisites for attaining sustainable growth in this competitive corporate world. Obeying the law, both in letter and in spirit, is the foundation on which the Company's ethical standards are built. The Company's corporate governance philosophy has been further strengthened by voluntarily adopting Corporate Governance Guidelines even though it is not required for an unlisted company. CORPORATE GOVERNANCE GUIDELINES During the year, the Company in line with the Ministry of Corporate Affairs, Government of India s Corporate Governance Voluntary Guidelines 2009 has voluntarily adopted following guidelines on 23 rd July 2012, which will ensure the highest standards of ethical and responsible conduct of business. The Board hopes that adoption of these guidelines will translate into a much higher level of stakeholders' confidence that is crucial to ensuring long-term sustainability and value generation by business. i) Formal appointment letter to be issued to Non Executive and Independent Directors ii) iii) iv) Code of conduct for Directors and Senior Management Certificate of independence to be provided by Independent Directors on an annual basis Remuneration policy for members of the Board and Key Executives v) Demarcation of roles and responsibilities of Chairman and Managing Director vi) vii) Process for interaction of Independent Directors with management Whistle Blower Policy These policies ensure that the Board will have the necessary authority and processes in place to review and evaluate the Company s operations effectively. Further, these policies allow the Board to make decisions that are independent of the Management. BOARD COMPOSITION Currently, the Board comprises of 7 Directors. The names and categories of Directors and the number of Directorships are given below: 8

13 Name NON-EXECUTIVE Nature of Directorship Other Directorships ($) Rajaraman P V, Chairman Independent 2 Meena Ganesh Independent 3 Rajan D G Independent 8 Sarabeswar R Independent 7 Sarath Naru Independent 14 Viswanatha Prasad Subbaraman Investor Nominee 4 EXECUTIVE Vasudevan P N (MD) Promoter Director 6 $ Excluding Alternate Directorships and Directorships of Foreign Companies/Bodies, wherever applicable. CHANGES IN BOARD CONSTITUTION During the year under review, Ms Meena Ganesh was appointed as Additional Director of the Company with effect from 6 th February 2013 till the completion of the forth coming Annual General Meeting, at which suitable resolution is being placed before the Shareholders for her appointment as a Director liable to retire by rotation. BOARD MEETINGS & ATTENDANCE During , five (5) Board Meetings were held on 2 nd May 2012, 23 rd July 2012, 5 th November 2012, 8 th January 2013 and 6 th February The gap between any two meetings has been less than four months. Name 9 Held No. of Meetings Attended NON-EXECUTIVE Rajaraman P V, Chairman 5 5 Meena Ganesh # 1 1 Rajan D G 5 5 Sarabeswar R 5 3 Sarath Naru 5 4 Viswanatha Prasad Subbaraman 5 4 EXECUTIVE Vasudevan P N (Managing Director) 5 5 # Ms Meena Ganesh was appointed as Additional Director of the Company with effect from 6 th February 2013.

14 INFORMATION SUPPLIED TO THE BOARD In advance of each meeting, the Board is presented with relevant information on various matters related to the working of the Company, especially those that require deliberation at the highest level. Presentations are also made to the Board by different functional heads, such as Head of Marketing, Head of Credit and Head of HR on important matters from time to time. Directors have separate and Independent access to officers of the Company. In addition to items which are required to be placed before the Board for its noting and/or approval, information is provided on various significant items. In terms of quality and importance, the information supplied by management to the Board of the Company is far ahead of the list mandated by the statute. COMMITTEES OF THE BOARD The Company at present has 2 (two) Committees of Board viz., Audit & Risk Management Committee and Resourcing Committee and 1 (one) Board constituted Committee viz., Asset Liability Management Committee. The Board is responsible for constituting, assigning and co-opting the members of the Committee. The Board fixes the terms of reference of Committees and also delegates powers from time to time. The Minutes of the Meetings of the Committee are placed before the Board for its information and confirmation. AUDIT & RISK MANAGEMENT COMMITTEE Composition The Audit & Risk Management Committee comprises of a Chairman who is an Independent Director and majority of Independent Directors. 1. Mr Rajan D G, Chairman 2. Mr Sarabeswar R 3. Mr Viswanatha Prasad Subbaraman Meetings & Attendance The Committee held 5 (five) meetings during the year on 2 nd May 2012, 23 rd July 2012, 5 th November 2012, 1 st December 2012 and 6 th February Name Held No. of Meetings Attended Rajan D G, Chairman 5 5 Sarabeswar R 5 3 Viswanatha Prasad Subbaraman

15 Terms of Reference The role of the Audit & Risk Management Committee, among others will include: 1. Oversight of the company s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the audit fees for the same. 3. Reviewing, with the management, the quarterly and annual financial statements before submission to the Board for approval, with particular reference to: a. Matters required to be included in the Director s Responsibility Statement to be included in the Board s report in terms of clause (2AA) of section 217 of the Companies Act, b. Changes, if any, in accounting policies and practices and reasons for the same. c. Major accounting entries involving estimates based on the exercise of judgment by management. d. Significant adjustments made in the financial statements arising out of audit findings. e. Compliance with accounting and other legal requirements relating to financial statements. f. Disclosure of any related party transactions. g. Qualifications in the draft audit report. 4. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems. 5. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. 6. Discussion with internal auditors any significant findings and follow up there on. 7. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. 8. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern. 9. Laying down and review of procedures relating to risk assessment & risk minimization to ensure that executive management controls risk through means of a properly defined framework. 10. Credit and Portfolio Risk Management 11. Operational and Process Risk Management 12. Laying down guidelines on KYC norms 13. Review on quarterly basis the securitization /bilateral assignment transactions and investment activities of the Company. 14. Annual review of the Company s Policies framed pursuant to RBI Guidelines and suggest changes, if any required to the Board for adoption. 11

16 The Audit & Risk Management Committee shall mandatorily review the following information: 1. Management discussion and analysis of financial condition and results of operations; 2. Statement of significant related party transactions (as defined by the Audit & Risk Management Committee), submitted by management; 3. Management letters / letters of internal control weaknesses issued by the statutory auditors; 4. Internal audit reports relating to internal control weaknesses. RESOURCING COMMITTEE Composition The Resourcing Committee comprises of 3 (three) Independent Directors and 1 (one) Executive Managing Director. 1. Mr Sarath Naru, Chairman 2. Mr Rajan D G 3. Mr Sarabeswar R 4. Mr Vasudevan P N, Managing Director Meetings & Attendance The Committee held 3 (three) meetings during the year on 31 st August 2012, 6 th February 2013 and 19 th March Name Held No. of Meetings Attended Sarath Naru, Chairman 3 1 Rajan D G 3 3 Sarabeswar R 3 3 Vasudevan P N 3 3 Terms of reference 1. to approve borrowings from various persons including banks, institutions, holding / group companies, corporates, etc. on such terms and conditions as to repayment, interest rate or otherwise as it thinks fit up to an aggregate sum of Rs 150 crores outstanding at any one time, such limit to be exclusive of any money borrowed by or on behalf of the Company otherwise thanby virtue of this resolution. 2. to approve establishment of current and other accounts with various banks upon such terms and conditions as may be agreed upon with the said bank. 3. to approve changes in persons authorized to operate current and other accounts and their signing limits for operating such accounts. 12

17 4. to approve closure of current and other accounts of the Company established with various banks. ASSET LIABILITY MANAGEMENT COMMITTEE (ALCO) Composition The Asset Liability Management Committee (ALCO) consists of the following members: 1. Mr Vasudevan P N, Managing Director - Chairman 2. Mr Sridharan N, Chief Financial Officer 3. Mr Ashutosh Atre, Business Head 4. Mr Vasudeva Sarma, Sr. General Manager, IT The Committee meets once in a quarter. Terms of Reference The terms of reference of ALCO are as follows: 1. Liquidity Risk Management 2. Management of Market (Interest Rate) Risk 3. Funding and Capital Planning 4. To determine Equitas Housing Finance Base Rate (EHFBR) 5. Pricing, Profit planning and Growth projections 6. Credit and Portfolio Risk Management 7. Setting credit norms for various lending products of the company 8. Operational and Process Risk Management. 9. Laying down guidelines on KYC norms 10. To approve and revise the actual interest rates to be charged from customers for different products from time to time applying the interest rate model. The Committee reviews the asset liability management reports, funding profile, setting the Base Rate and lending rates for different risk segments, etc. REMUNERATION OF DIRECTORS All Directors except the Managing Director are paid a sitting fee of Rs 10,000/- for attending every meeting of the Board and Rs 5,000/- for every meeting of the Committees thereof. No sitting fee is payable to members of the Asset Liability Management Committee. The sitting fees paid to Directors along with their shareholdings in the Company are as under: 13

18 Name Sitting fees (Rs) Board Committee No. of equity shares held on 31 st March 2013 Rajaraman P V 50,000 Nil Nil Meena Ganesh 10,000 Nil Nil Rajan D G 50,000 40,000 Nil Sarabeswar R 30,000 30,000 Nil Sarath Naru 40,000 5,000 Nil Viswanatha Prasad Subbaraman 40,000 25,000 Nil Mr Vasudevan P N Nil Nil Nil Following is the remuneration paid to the Non-Executive Directors for the Financial Year ended 31 st March 2013: Name Remuneration (Amout in ) Rajaraman P V 3,00,000 Meena Ganesh 22,191 Rajan D G 2,25,000 Sarabeswar R 1,50,000 Sarath Naru 1,50,000 Viswanatha Prasad Subbaraman 1,50,000 Total 9,97,191 GENERAL BODY MEETINGS During the year ended 31 st March 2013, one (1) Annual General Meeting and one (1) Extraordinary General Meeting were held as per details given below: Date Time Venue 9 th May 2012 (AGM) 9 th January 2013 (EGM) P.M A.M. 4 th Floor, Temple Tower, 672, Anna Salai, Nandanam, Chennai th Floor, Temple Tower, 672, Anna Salai, Nandanam, Chennai All the proposed resolutions, including special resolutions, were passed by the shareholders as set out in their respective Notices. KYC/AML & FAIR PRACTICES CODE The Company has formulated a Know Your Customer / Anti Money Laundering Policy in terms of NHB Guidelines in this regard. The Company has also adopted Fair Practices Code pursuant to NHB Guidelines and the same is displayed on the Company s website. 14

19 CEO/CFO CERTIFICATION CEO and CFO have given a certificate to the Board as per the format given in clause 49 of the listing agreement. CODE OF CONDUCT The Board at its meeting held on 24th July 2012 laid down a code of conduct for all Directors and Senior Management of the Company. All Directors and Senior Management Personnel have affirmed compliance with the code for WHISTLE BLOWER POLICY The Company has adopted the Whistle Blower Policy pursuant to which the employees and the vendors of the Company can raise their concerns relating to unethical and improper practices or any other wrongful conduct in the Company or amongst its employees. Details of complaints received and the action taken are reviewed by the Audit and Risk Management Committee. None of the personnel has been denied access to the Audit & Risk Management Committee and the Company has provided protection to whistle blower from adverse personnel action. DISCLOSURES The particulars of transactions between the Company and its related parties, as defined in Accounting Standard 18, are set out in the financial statements. GENERAL SHAREHOLDER INFORMATION Financial year: April 1 st to March 31 st Shareholding pattern as on 31 st March 2013 Category # Shares % Equitas Holdings P Limited (Indian Holding Company) 3,99,99, % S Bhaskar (Nominee of Equitas Holdings P Limited) 1 0% Total 4,00,00, % Address for Correspondence Company Secretary Equitas Housing Finance Private Limited 4 th Floor, Temple Tower, 672, Anna Salai, Nandanam Chennai Tel : (044) Fax: (044) For and on behalf of the Board of Directors P V Rajaraman Chennai, 02 nd May, 2013 Chairman 15

20 CEO / CFO Certificate The Board of Directors Equitas Housing Finance Private Limited This is to certify that: 1. We have reviewed Financial Statements and the Cash Flow Statement for the Financial Year ended 31st March 2013 and that to the best of our knowledge and belief: a. these Statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; b. these Statements together present a true and fair view of the Company s affairs and are in compliance with existing Accounting Standards, applicable laws and regulations. 2. There are, to the best of our knowledge and belief, no transactions entered into by the Company during the year which are fraudulent or illegal. 3. We accept responsibility for establishing and maintaining internal controls for Financial Reporting. Mr P N Vasudevan MD/CEO Mr N Sridharan CFO Chennai, 2 nd May

21 INDEPENDENT AUDITORS REPORT To the Members of Equitas Housing Finance Private Limited 1. Report on the Financial Statements We have audited the accompanying financial statements of Equitas Housing Finance Private Limited ( the Company ), which comprise the Balance Sheet as at March 31, 2013, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information. 2. Management s Responsibility for the Financial Statements Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 ( the Act ) and the guidelines issued by National Housing Bank. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. 3. Auditor s Responsibility a. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. b. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. c. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 17

22 4. Opinion In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: a. in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2013; b. in the case of the Statement of Profit and Loss, of the Profit for the year ended on that date; and c. in the case of the Cash Flow Statement, of the cash flows for the year ended on that date. 5. Report on Other Legal and Regulatory Requirements a. As required by the Companies (Auditor s Report) Order, 2003 ( the Order ) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order. b. As required by section 227(3) of the Act, we report that: i. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. ii. iii. iv. In our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books. The Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account. In our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956; v. On the basis of written representations received from the directors as on March 31, 2013, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2013, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, Place: Chennai Date : 02 May 2013 For Brahmayya & Co., Chartered Accountants Firm Regn. No S K Jitendra Kumar Partner Membership No

23 Equitas Housing Finance Private Limited ( the Company ) Annexure referred to in paragraph 5 of our report of even date 1. The provisions of Clauses of Paragraph 4 of the Companies (Auditor s Report) Order, 2003 as amended by Companies (Auditor s Report) (Amendment) Order, 2004 listed below are not applicable to the Company for the year: a. Clause (ii) regarding physical verification of inventories the Company is a Non-Banking Financial Company primarily rendering financial services does not hold any physical inventories; b. Clause (vi) regarding acceptance of deposits since no deposits have been accepted by the company; c. Clause (viii) regarding maintenance of cost records under Section 209(1)(d) of the Companies Act, 1956 since does not apply to the company; d. Clause (x) regarding accumulated losses exceeding 50% of the Net worth of the company, since the company has not completed 5 years; e. Clause (xiii) regarding special statute applicable to Chit Funds and Nidhis / Mutual Benefit Fund and Societies since the company has not carried on any such activities; f. Clause (xiv) regarding the dealing in or trading in shares, securities, debentures and other investments. The Company has not carried on any such activities g. Clause (xix) regarding creation of securities in respect of debentures since no such securities have been created by the company; and h. Clause (xx) regarding money raised by public issue and its end use since no such money has been raised. 2. The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. The fixed assets were physically verified by the management during the year. As informed to us, no material discrepancies were noticed on such verification. The Company has not disposed off substantial part of its fixed assets during the year giving rise to the question of whether the company s ability to continue as a going concern is impaired. 3. a. In our opinion and according to the information and explanations given to us, the company has not granted any loan, secured or unsecured, to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, b. According to the information and explanations given to us, the Company has taken unsecured loans from the Holding Company, which is covered in the register maintained under section 301 of the Companies Act, The maximum amount involved during the year was 9,50,00,000/- and the balance at the end of the year was 5,00,00,000/-. The Company 19

24 has not taken any loan secured or unsecured from any other party or firm covered in the register maintained under section 301 of the Companies Act, c. In our opinion, the rate of interest and other conditions on which loan has been taken is not, prima facie, prejudicial to the interest of the Company. d. In respect of loan taken by the Company, the payment of principal and interest are regular. 4. In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the company and the nature of its business with regard to purchase and sale of services. During the course of our audit, no major weakness has been noticed in the internal control system in respect of these areas. 5. a. Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that the transactions that need to be entered into the register maintained under section 301 have been so entered. b. In respect of the transactions made in pursuance of such contracts or arrangements exceeding value Rupees five lakhs entered into during the financial year are reasonable having regard to the prevailing market prices at the relevant time in respect of loan taken and in respect of other transaction, wherever applicable. 6. In our opinion, the Company has an adequate internal audit system commensurate with the size of the Company and nature of its business. 7. a. According to the records of the Company, the Company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education protection fund, employees state insurance, income-tax, sales-tax, wealth-tax, service tax, custom duty, excise duty, cess. There are no undisputed amounts payable in respect of statutory dues, which are outstanding as at 31st March, 2013 for a period of more than six months from the date they become payable. b. Based on our audit procedures and on the information and explanations given by the Management, there are no disputed statutory dues outstanding. 8. In our opinion and according to the information and explanations given to us, the company has not defaulted in repayment of dues to banks. The company has not obtained any borrowings from any financial institutions or by way of debentures. 9. According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. 10. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or financial institutions. 11. According to the information and explanations given to us on an overall basis, term loans obtained by the company were, prima facie, applied during the year for the purposes for which the loans were obtained, other than temporary deployment pending application. 20

25 12. According to cash flow statement and other records examined by us and the information and explanations given to us, and as mentioned above, on an overall basis, funds raised on short term basis, prima facie, has not been used during the year for long term investment 13. The company has not made a preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act Based upon the audit procedures performed and information and explanations given by the management, we report that no fraud on or by the company has been noticed or reported during the course of our audit. Place: Chennai Date : 02 May 2013 For Brahmayya & Co., Chartered Accountants Firm Regn. No S K Jitendra Kumar Partner Membership No

26 Balance Sheet as at Particulars Note No EQUITY AND LIABILITIES Shareholders' Funds Share Capital 3 400,000, ,000,000 Reserves and Surplus 4 (43,473,099) (50,549,433) 356,526, ,450,567 Non-Current Liabilities Long Term Borrowings 5 89,444,446 - Other Long-Term Liabilities 6 34,020 17,010 Long-Term Provisions 7 3,445, ,058 92,924, ,068 Current Liabilities Short Term Borrowings 8 50,000,000 - Other Current Liabilities 9 15,385,192 4,358,069 Short-Term Provisions 10 1,502, ,744 66,888,098 4,713,813 TOTAL 516,339, ,926,448 ASSETS Non-Current Assets Fixed Assets 11 - Tangible Assets 1,594,819 2,251,837 - Intangible Assets 7,058,067 1,208,250 8,652,886 3,460,087 Deferred Tax Assets (Net) 12 17,622, ,410 Long Term Receivables Under Financing Activities ,539,762 80,979,554 Long Term Loans and Advances 14 1,003,423 3,172, ,166,039 88,213,908 Current Assets Cash and Cash Equivalents 15 34,466,205 62,767,193 Short-Term Receivables from Financing Activities 16 11,866,483 1,110,061 Short-Term Loans and Advances 17 2,008,248 2,112,658 Other Current Assets 18 6,179, ,628 54,520,436 66,712,540 TOTAL 516,339, ,926,448 Refer Summary of Significant Accounting Policies and Other Explanatory information 1-37 As per our report of even date attached For Brahmayya & Co., Chartered Accountants Registration No S For and on behalf of the Board of Directors K.Jitendra Kumar PV Rajaraman PN Vasudevan Partner Chairman Managing Director Membership No Place : Chennai Date : 02 May 2013 N Sridharan DG Rajan Jyoti Mittal Chief Financial Officer Director Company Secretary Place : Chennai Date : 02 May

27 Statement of Profit and Loss for the Year Particulars Note No INCOME Revenue from Operations 19 52,100,720 12,700,240 Other Income 20 40,753 43,520 Total Revenue 52,141,473 12,743,760 EXPENSES Employee Benefits Expense 21 38,940,629 38,985,317 Finance charges 22 2,780,068 - Depreciation and Amortisation Expense ,130,492 2,007,314 Other Expenses 23 17,235,395 18,668,877 Total Expenses 62,086,584 59,661,508 (Loss) Before Tax (9,945,110) (46,917,748) Tax Expense - Current tax expense for current year Current tax expense relating to prior years - (510,000) - Deferred Tax 12 (17,021,444) (278,106) Profit (Loss) After Tax 7,076,334 (46,129,642) Earnings Per Equity Share - Basic & Diluted (in ) (5.88) Refer Summary of Significant Accounting Policies and Other Explanatory information 1-37 As per our report of even date attached For Brahmayya & Co., Chartered Accountants Registration No S For and on behalf of the Board of Directors K.Jitendra Kumar PV Rajaraman PN Vasudevan Partner Chairman Managing Director Membership No Place : Chennai Date : 02 May 2013 N Sridharan DG Rajan Jyoti Mittal Chief Financial Officer Director Company Secretary Place : Chennai Date : 02 May

28 Cash Flow Statement for the Year Particulars A. Cash Flow from Operating Activities Net (Loss) Before Tax (9,945,110) (46,917,748) Adjustments for: Depreciation and Amortisation Expense 3,130,492 2,007,314 Finance Costs 2,780,068 - Loss on Sale of Fixed Assets - 80,096 Provision for Standard Receivables under Financing Activity 1,981, ,358 Provision for Employee Benefits 1,866, ,604 Interest /Dividend Income (348,172) (2,886,710) Net Gain on Sale of Current Investments in Mutual funds (2,056,258) (1,242,811) Operating Loss before Working Capital Changes (2,590,980) (47,998,897) Adjustments for Changes in Working Capital Adjustments for (increase) / decrease in operating assets: Long Term Receivables under Financing Activities (353,560,208) (80,979,554) Long Term Other Loans and Advances - (510,500) Short Term Receivables under Financing Activities (10,756,422) (1,110,061) Short Term Other Loans and Advances 104,410 (2,092,219) Other Current Assets (5,606,050) 505,170 Adjustments for increase / (decrease) in operating liabilities: Other Long-Term Liabilities 17,010 17,010 Other Current Liabilities (549,898) 3,456,386 Cash Generated from Operations (372,942,138) (128,712,665) Finance Costs (2,601,301) - Interest /Dividend Income 497,350 2,340,937 Net Income Taxes Paid (80,566) (276,678) Net Cash Flow Used in Operating Activities (375,126,655) (126,648,406) B. Cash Flow from Investing Activities Capital Expenditure on Fixed Assets (5,230,591) (5,623,669) Proceeds from Sale of Fixed Assets - 532,224 Bank deposits (Net) 35,000,000 17,802,000 Purchase of Current Investments (213,052,788) (70,000,000) Proceeds from Sale of Investments 215,109,046 71,242,811 Net Cash Flow from Investing Activities 31,825,667 13,953,366 24

29 Particulars C. Cash Flow from Financing Activities Proceeds from Issue of Equity Shares 200,000, ,000,000 Long Term Borrowings 100,000,000 - Short Term Borrowings 190,000,000 - Repayment of Short Term Borrowings (140,000,000) - Net Cash Flow from Financing Activities 350,000, ,000,000 Net Increase in Cash and Cash Equivalents (A) + (B) + (C) 6,699,012 27,304,960 Cash and Cash Equivalents at the Beginning of the Year 27,767, ,233 Cash and Cash Equivalents at the End of the Year 34,466,205 27,767,193 6,699,012 27,304,960 Note: The reconciliation to the Cash and Cash Equivalents as given in Note 15 is as follows: Cash and Cash Equivalents as per Note 15 34,466,205 62,767,193 Less: Deposits with Original Maturity over a period of 3 months - 35,000,000 Cash and Cash Equivalents as at the End of the Year 34,466,205 27,767,193 Refer Summary of Significant Accounting Policies and Other Explanatory information 1-37 As per our report of even date attached For Brahmayya & Co., Chartered Accountants Registration No S For and on behalf of the Board of Directors K.Jitendra Kumar PV Rajaraman PN Vasudevan Partner Chairman Managing Director Membership No Place : Chennai Date : 02 May 2013 N Sridharan DG Rajan Jyoti Mittal Chief Financial Officer Director Company Secretary Place : Chennai Date : 02 May

30 Summary of Significant Accounting Policies and Other Explanatory information for the Year 1 CORPORATE INFORMATION Equitas Housing Finance Private Limited ( the Company ) was incorporated on 14 May The Company is a wholly owned subsidiary of Equitas Holdings Private Limited (formerly known as Equitas Micro Finance India Private Limited). The Company has obtained the Certificate of Registration from National Housing Bank ( NHB ) under Section 29A of the National Housing Bank Act, 1987 on 24 January 2011 to carry on the business of a Housing Finance Institution without accepting public deposits. The housing finance operations of the company are focusing on the self-employed and salaried segment of low and middle income groups. 2 SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of Accounting The financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) / The Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956 and the guidelines issued by the National Housing Bank. The financial statements have been prepared on accrual basis under the historical cost convention. The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year. The Company follows the prudential norms for income recognition, asset classification and provisioning as prescribed by National Housing Bank (NHB) or more stringent norms as indicated in Note Use of Estimates The preparation of the financial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known / materialise. 2.3 Cash Flow statement Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information. Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid 26

31 investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. 2.4 Tangible Fixed Assets Fixed assets, are carried at cost less accumulated depreciation and impairment losses, if any. The cost of a tangible asset comprises its purchase price, including any import duties and other taxes (other than those subsequently recoverable from the taxing authorities), and any directly attributable expenditure on making the asset ready for its intended use and net of any trade discounts and rebates. Capital Work-in-Progress: Projects under which assets are not ready for their intended use and other capital work-in-progress are carried at cost, comprising direct cost and related incidental expenses. 2.5 Intangible Assets Intangible assets are carried at cost less accumulated amortisation and impairment losses, if any. The cost of an intangible asset comprises its purchase price, including any import duties and other taxes (other than those subsequently recoverable from the taxing authorities), and any directly attributable expenditure on making the asset ready for its intended use and net of any trade discounts and rebates. Subsequent expenditure on an intangible asset after its purchase / completion is recognised as an expense when incurred unless it is probable that such expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standards of performance and such expenditure can be measured and attributed to the asset reliably, in which case such expenditure is added to the cost of the asset. 2.6 Investments a. Investments, which are readily realisable and intended to be held for not more than one year from the date on which such investments are made, are classified as Current Investments. Current investments are carried at lower of cost and fair value. b. Long-term investments are carried individually at cost less provision for diminution, other than temporary, in the value of such investments. Cost of investments includes acquisition charges such as brokerage, fees and duties. 2.7 Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. a. Interest Income on Loans granted is recognised under the Internal rate of return method. Income on Non- performing Assets is recognized only when realized and any interest accrued until the asset became a Non-performing Asset and remaining overdue is de-recognized by reversing the interest income. Pending Commencement of Equated Monthly Instalments(EMIs), Pre-EMI interest is payable every month. Interest on Loans is computed on monthly rest basis. b. Loan Processing Fee and Admin Fee is recognized as income on collection. 27