Equitas Finance Private Limited

Transcription

1 Equitas Finance Private Limited

2 CORPORATE INFORMATION Board of Directors Sl. No. Name Designation 1 Kuppuswamy P T Chairman and Independent Director 2 Balasubramaniam P S Independent Director 3 George V A Independent Director 4 Jagannath R Independent Director 5 Parthasarathy P Independent Director 6 Sharma V K Independent Director 7 Venkatesh Natarajan Nominee Director 8 Lalitha Lakshmanan Non-Executive Director 9 John Arunkumar Diaz Non-Independent Non-Executive Director 10 Vasudevan P N Non-Independent Non-Executive Director Key Managerial Personnel 1 Murthy V S Chief Executive Officer 2 Vasudevan S Chief Financial Officer 3 Sridevi Surender Company Secretary Registered Office Statutory Auditors Internal Auditors Phase II, 4 th Floor, Spencer Plaza, No.769, Anna Salai, Chennai Tel: Fax: corporate@equitas.in Website: CIN: U65191TN1993PTC Deloitte Haskins & Sells 8 th Floor, ASV N, Ramana Towers, 52, Venkatnarayana Road T.Nagar, Chennai Tel: Fax: Kumbhat & Co., No 144, N.S.C. Bose Road Chennai Tel: Equitas Finance Private Limited

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4 Public Sector Banks Allahabad Bank Andhra Bank Bank of Maharashtra Central Bank of India Corporation Bank Dena Bank IDBI Bank Ltd. Indian Bank Indian Overseas Bank State Bank of Hyderabad State Bank of India State Bank of Patiala State Bank of Mysore Syndicate Bank Union Bank of India Vijaya Bank Bankers Name of the Bank Private Sector Banks Axis Bank Ltd. Dhanlaxmi Bank Ltd. HDFC Bank Ltd. ICICI Bank Ltd. Karur Vysya Bank Ltd. Kotak Mahindra Bank Ltd. Lakshmi Vilas Bank Ltd. RBL Bank Ltd. South Indian Bank Ltd. Tamilnad Mercantile Bank Ltd. Non-Bank Lenders Capital First Ltd. IDFC Ltd. IFMR Capital Finance Private Ltd. MAS Financial Services Ltd. Reliance Capital Limited Small Industries Development Bank of India Tata Capital Financial Services Ltd. Equitas Finance Private Limited

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6 TABLE OF CONTENTS Directors Report Management Discussion and Analysis Corporate Governance Report Auditors Report Financial Statements Equitas Finance Private Limited

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8 DIRECTORS REPORT EQUITAS FINANCE PRIVATE LIMITED CIN: U65191TN1993PTC Registered Office: Spencer Plaza, Phase II, 4 th Floor, 769, Anna Salai, Chennai Tel.: corporate@equitas.in Website: TO THE MEMBERS The Directors have pleasure in presenting the 22 nd Annual Report together with the audited Accounts of the Company for the financial year ended 31 st March 2015 (FY ). 1. Overview Equitas Finance Private Limited [EFPL], is a wholly owned subsidiary of M/s. Equitas Holdings Private Limited [EHPL]. The Company has been classified as Asset Finance Company Non Deposit Taking as per Reserve Bank of India [RBI] Certificate of Registration No. B dated 10 th October 2012.The Company, being a Systemically Important Non-Deposit taking NBFC, has complied with all the applicable regulations of RBI. As per Non-Banking Finance Companies Directions, 1998, issued by RBI, the Directors hereby report that the Company had not accepted any public deposits during the year and did not have any public deposits outstanding as at the end of the year. There has been no change in the business of the Company during this period. 2. Financial Results (Rupees in Lakhs) Particulars For the Year ended 31 st March 2015 For the Year ended 31 st March 2014 Gross income 29, , Less: Total Expenditure 24, , Profit before taxation 5, , Provision for taxation 1, Profit after taxation 3, , Transfer to General Reserve Dividend The Directors do not recommend any dividend for the year. 1 Equitas Finance Private Limited

9 4. Operational highlights The details of operations are given in the attached Annexure I - Management Discussion and Analysis [MD&A] Report. 5. Capital Adequacy The Capital Adequacy ratio stood at 38.63% as on 31 st March 2015 as against the minimum requirement of 15% stipulated by RBI. The Net Owned Funds (NOF) as on that date was Rs.62, lakhs. 6. Changes in Share Capital During the year under review, the Holding Company had infused capital of Rs crore into the Company. The Company had allotted 18,23,00,000 [Eighteen crore and Twenty Three lakhs] shares at a price of Rs (Face value Rs and Premium Rs.6.45) to the Holding Company on a Rights basis. 7. Subsidiaries The Company has no subsidiaries. 8. Material changes after the Balance Sheet Date as at 31 st March 2015 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. 9. Corporate Governance Rating EHPL has been assigned CRISIL GVC Level 2 rating by Credit Rating Agency, M/s. CRISIL. This Governance and Value Creation (GVC) rating indicates Very High capability with regard to Corporate Governance and value creation for all its stakeholders. 10. Corporate Governance Report Clause 49 of the standard listing agreement which includes the Corporate Governance Report does not apply to the Company. Notwithstanding that, a report on Corporate Governance is attached and forms part of the Directors Report. Details on composition of various Committees of the Board and number of Meetings of Board &Committees are given in the Corporate Governance Report. The Company has devised a vigil mechanism for directors and employees, details whereof is available on the Company s website at 2 Equitas Finance Private Limited

10 During the year under review, 10 complaints were received under the Whistle Blower Policy of the Company, all of which were resolved. These are placed before the Audit & Risk Management Committee and the Board every quarter for review. 11. Management Discussion and Analysis The Management Discussion and Analysis [MD&A] Report, highlighting important aspects of the business is attached and forms part of this report. 12. Directors and Key Managerial Personnel While appointing Directors, the Company takes into account appropriate balance of skills, experience, independence and knowledge to enable them to discharge their respective duties and responsibilities effectively. The Company has laid down a clear Policy on remuneration to Directors, KMP and other employees. The following changes took place in the Board of Directors during the year: i. Mr Sharma V K was appointed as Additional Director with effect from 7 th May ii. iii. iv. Mr Mohit Nijhawan, Director, unfortunately expired on 21 st May 2014 and consequently, ceased to be a Director w.e.f 21 st May Mr John Arunkumar Diaz was appointed as Additional Director with effect from 30 th October Mr Venkatesh Natarajan was appointed as Nominee Director of CDC Group plc with effect from 30 th October v. Mr Gary Jit Meng Ng, Nominee Director appointed by Lumen Investment Holdings Limited (Lumen), resigned from the Directorship of the Company with effect from 24 th December 2014, as a result of Lumen s shareholding in Equitas Holdings Private Limited [EHPL] falling below the threshold limit of 9% of its outstanding Equity shares, consequent to which, Lumen withdrew the nomination. vi. vii. Mr Vasudevan P N ceased to be the Managing Director of the Company with effect from 29 th January He continues to be a Non Executive Director on the Board. Ms Lalitha Lakshmanan was appointed as an Additional Director with effect from 28 th March Mr John Arunkumar Diaz and Ms. Lalitha Lakshmanan, Additional Directors hold office till the date of the ensuing Annual General Meeting of the Company. The Directors recommend the appointment of Mr John Arunkumar Diaz as Director and Ms Lalitha Lakshmanan as Independent Director of the Company. Appropriate resolutions for their appointment are being placed for the approval of the shareholders at the ensuing Annual General Meeting. 3 Equitas Finance Private Limited

11 12.2 Mr Vasudevan P N, Non-Executive Director retires by rotation this year, and being eligible, offers himself for re-appointment. The Directors recommend his re-appointment as Director of the Company. Appropriate resolution for his re-appointment is being placed for approval of the shareholders at the ensuing Annual General Meeting During the Financial Year ended 31 st March 2015, Ms Sridevi Surender was appointed as Company Secretary of the Company with effect from 8 th August Mr Vasudevan S was appointed as Chief Financial Officer of the Company with effect from 30 th October Mr Murthy V S was appointed as Chief Executive Officer of the Company with effect from 29 th January Overall Remuneration Details of all elements of remuneration package of Managing Director, Directors & Key Managerial Personnel are given in the Corporate Governance Report annexed hereto (Annexure II). The Directors of the Company are not entitled to Stock Options. During the year, there were no employees, who were in receipt of remuneration as per Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, Details of remuneration as required under Section 197 of the Companies Act, 2013 are furnished as Annexure III. 14. Evaluation of Board Performance The performance of the Board, Audit & Risk Management Committee, Remuneration & Nomination Committee and that of the individual Directors for the Financial Year were evaluated on the basis of criteria as approved by the Board. 15. Directors Responsibility Statement The Directors Responsibility Statement as required under Section 134(3)(c) of the Companies Act, 2013 reporting the compliance with the accounting standards, is attached and forms part of the Directors Report (Annexure IV). 16. Auditors M/s Deloitte Haskins & Sells, Chartered Accountants, Auditors of the Company retire at the forthcoming Annual General Meeting (AGM) and are eligible for re-appointment. The Company has received a letter from them, stating that they satisfy the criteria provided under Section 141 of the Companies Act, 2013 and the appointment, if made, will be in accordance with the conditions prescribed under the Companies (Audit and Auditors) Rules, The Directors recommend the re-appointment of M/s Deloitte Haskins & Sells, Chartered Accountants, as Auditors of the Company for a period of 2 years commencing 4 Equitas Finance Private Limited

12 from the conclusion of the ensuing AGM till the conclusion of the 24 th AGM to be held in the year 2017 subject to ratification by shareholders at every AGM. 17. Information as per Section 134 (3) (q) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 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 Rule 8 of the Companies (Accounts) Rules, 2014 does not arise During the year, the Company did not have any foreign currency earnings. Foreign currency expenditure of Rs.2.5 lakhs was incurred by the Company. 18. Particulars of contracts or arrangements with Related Parties is given in Annexure V. 19. Risk Management The Company has a Board approved Risk Management Policy and the Board periodically reviews the risks faced by the Company and the practices/processes followed to manage the risks. Details of the same are covered in the MD&A. 20. Internal Financial control The Company s resources are directed and monitored in a properly controlled manner. Procedures are set so as to detect and prevent frauds and to protect the Company s resources. The financial statements are prepared in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India [ICAI]. 21. Corporate Social Responsibility (CSR) The Company has laid down a Corporate Social Responsibility Policy. In accordance with the Policy, the Company contributes 5% of its net profits to Equitas Development Initiatives Trust (EDIT). CSR activities are carried out through this Trust. A report on Corporate Social Responsibility is annexed herewith, which forms part of the Report (Annexure VI). 22. Secretarial Audit Report The Secretarial Audit Report as obtained from Dr B Ravi, Practising Company Secretary is attached herewith alongwith the response of the Company to the qualifications made therein (Annexure VII). 23. Extract of Annual Return The extract of Annual Return is annexed hereto as Annexure forming part of the Report (Annexure VIII). 5 Equitas Finance Private Limited

13 24. Declaration by Independent Directors The declaration by the Independent Directors under Section 149(7) of the Companies Act, 2013 has been received by the Company. 25. Loans / Guarantees / Investments The Company has not given any loans/guarantees/made investment in securities as covered under Section 186 of the Companies Act, Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 The Company has in place an Anti-Sexual Harassment Policy in line with the requirements of The Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, Internal Complaints Committee has been set up to redress complaints received regarding sexual harassment. All employees are covered under the policy. During the year , 2 complaints were received and disposed off. 27. In accordance with Rule 8(5)(vii) of the Companies (Accounts) Rules 2014, there have been no significant and material orders passed by the Regulators or Courts or Tribunals impacting the going concern status of the Company and its operations in future. Acknowledgement The Directors gratefully acknowledge the excellent relationship with the Boards of the Holding Company and their continued guidance and support for the various activities of our Company. The Directors also place on record the active support from the Banks and Financial Institutions associated with the Company. The Directors also thank the employees of the Company for their commitment and contribution in the growth of the Company. For and on behalf of the Board of Directors Kuppuswamy P T Chairman Vasudevan P N Director Chennai 30 April Equitas Finance Private Limited

14 Annexure I Equitas Finance Private Limited Management Discussion and Analysis Introduction Equitas Finance Private Limited [EFPL] is an NBFC-ND-SI registered with RBI under the Asset Finance Company [AFC] category. It provides asset-based financing to segments of customers, who do not have adequate access to finance from formal financial system. EFPL, apart from providing finance for acquiring used commercial vehicles [CV] to small truck operators, also provides Micro Small and Medium Enterprises (MSME) financing and Mortgage Loans to self-employed business people. Trends in the market Vehicle Finance: With the slowdown in the Indian economy, new vehicle sales during the past two years were the lowest in a decade. Though, initially this had little impact on sale and purchase of used CV, prolonged sluggish market conditions did affect the used CV market. This was clearly evident during FY , when the resale value of used CVs was also affected. The typical customer who desires to buy a 5 to 10 year old commercial vehicle is a Small Truck Operator [STO] owning 2-3 trucks or first time users [FTUs]. Typically people who have been drivers for a period of time and have saved enough money to provide margin, look to buy used truck, in the process turning from a driver to an owner. Such people do not have any credit history and are hence not funded by the mainstream financial service providers. Further, the average ticket size for such funding is around Rs.3 lakhs. This, combined with the fact that such customers typically need a lot more time to be spent both at the time of credit assessment and subsequently, makes the transaction both cumbersome and costly. Apart from the very few strong players in the used CV finance industry, the key competition is from the unorganised and private financier segments. Large NBFCs focusing on financing new CVs have generally stayed away from this market; however, because of stress in sale of new vehicles, some of the large players may start focusing aggressively on used CV market in the near to medium term. The Company offers its service to such clients mentioned above. Out of about 40,000 used CV finance clients funded so far by EFPL, about 80% of them are first time finance buyers with no exposure to any other banks or NBFCs. The market for used CV finance is closely linked to the overall economy of the country and key indicators such as industrial and agricultural outputs. Sufficient freight availability is crucial for transporters to ensure they turnaround their vehicle optimally increasing their freight revenues. 7 Equitas Finance Private Limited

15 Given the profile of such customers, their ability to absorb earning shocks beyond a couple of months is low. This calls for very close handholding and working with each client to support them suitably in times of stress. The Company s receivables management has been good and the level of delinquencies & NPA are under control and compare favourably with peers. However, receivables management would remain a key management focus. Micro Small & Medium Enterprises [MSME] It is widely accepted that the MSME segment in India is deprived of credit from formal source of finance. As per the report by the Planning Commission sub-group on flow of private sector investments for MSME sector, the annual unmet credit demand works out to over Rs.10 lakh crore. Government of India and RBI have formulated and implemented several policies to expand credit facilities for the MSME segment. An enterprise is classified as MSME, if investment in plant & machinery is not more than Rs.2 crore in the services sector and not more than Rs.5 crore in the manufacturing sector. Equitas target segment is at lower end within the MSME segment, which are currently not serviced by any formal financiers. Equitas is one amongst few to explore financing to this segment and offers loans with ticket size ranging from Rs.50,000 to Rs.5 lakhs to these customers. FY 2015 was the first full year of MSME financing operations, which was largely restricted to south India. The business is sourced through the micro finance arm of the Group and collection is also done through them. There is no delinquency as on date in the MSME portfolio due to the close understanding of the customer segment as well as ensuring repayment through ECS mode. Mortgage Loans Mortgage loans, also known as Loan against Property (LAP), is a product which is suitable for the MSME segment, as it provides finance for augmenting working capital to expand business and debt consolidation against the security of residential or commercial property. Banks and mainstream Housing Finance Companies have been offering mortgage loans as a product for many years now. Mortgage loan is offered to both salaried segments as well as self-employed business people. NBFCs who were either in vehicle financing or stock broking had no presence in the mortgage loan market until 10 years back. However from the year , many NBFCs forayed into mortgage loans and offered the product to both salaried and self-employed segments. The Company commenced mortgage loans during FY This product is targeted at niche segment of self-employed individuals, who operate in the informal economy. The ticket size of such loans is 8 Equitas Finance Private Limited

16 typically from Rs.5 to Rs. 25 lakhs. Estimating the cash flows of these customers is a challenge given the informal nature of the business. Equitas has developed a unique approach to analyze the cash flows and repayment capacities of such customers. The focus of the Company in terms of customer segment is, those who: a) deal in goods or services of daily use nature, b) sell on cash & carry and c) have bank accounts, where the turnover / income is routed. In summary, EFPL has been able to grow well in the last year in all the three segments it operates due to the unique position that it has built and continuing to build in these spaces. This is aided by: a) Understanding of the markets Deep understanding of this segment of customers is possible since Equitas Group has been servicing similar customer profile since its inception. This is aided by the fact that the management team as well as most of the organisation comes with deep understanding and long experience of servicing customers, who are not serviced by the formal financial sector. b) Credit and operational risk management Credit Risk: Assessing the repayment capability of customers is a major challenge in these categories. This is largely because of the very low asset base and cash-based income of the borrowers. Assessment of the applicant s knowledge of the business and financial viability is done by field staff as well as an independent team of credit officers. A viability report is prepared for each customer before credit decision is taken. Operational Risk: A majority of customers in this segment lack proper banking habits and hence end up paying back the instalments by way of cash, mainly in used CV finance business, creating resultant operational risks. The experience of running micro finance with 100% cash collections and strong risk management practices has been leveraged to bring about similar high quality operational processes. Mobile based receipting technology at the field level has enhanced controls significantly and reduced the operational risk. Endorsement of the Company s name in the Registration Certificate [RC Book] of the vehicle is of paramount importance to establish the security in favour of the Company. For MSME and LAP businesses, registration of Mortgage Deed is mandatory. These are tracked closely. c) Relationship with customers The cash flow of the customers, in used CV segment, is typically dependent on the one or two vehicles they own and any minor disturbance, including accident could affect their cash flow and 9 Equitas Finance Private Limited

17 ability to service the loan on time. The market practice is for the financier to repossess the vehicles after the overdues cross 60 or 90 days, with little effort made to differentiate between intent and ability of the customer to repay. Equitas has redefined its approach in this crucial aspect of customer relationship. Branch team is trained to differentiate between customers with genuine difficulties and customers who are intentionally avoiding the repayment. EFPL provides its data to all the four Credit Information Companies [CICs] i.e., Credit Bureaus operating in the country. The repayment pattern of customers is also shared with these CICs on a monthly basis. Customers are kept informed of the information sharing and also how it helps them when they maintain good repayment track record. Customers in MSME and mortgage loan divisions repay through ECS mode and probably this is the first time that they are effectively using the banking channel to repay loans. These customers need constant reminders to keep funds in their bank accounts at the time the monthly commitment hits their bank account. The tele-calling team at Equitas Head Office calls customers in advance to alert and remind them of the instalment due date. d) Risk Management policy Equitas has a Risk Management policy framework developed in line with the business and operational requirements, which guides the risk management strategy of the Company. The risks that are part of the policy framework covers both, external and internal risks. The Risk Management policy is presented to the Audit & Risk Management Committee and Board every year at its respective Meetings, wherein the risk parameters as assessed by the Management is presented to the Committee and Board. A scoring methodology has also been evolved based on the severity and likelihood of each risk; the risk score arrived at is categorised as High, Low & Medium. Further, the progress / movement is captured on each of the risk element, especially the high risk areas, on an ongoing basis and periodically reviewed by the Management for corrective actions, if required. The Company has also in place a FMEA [Failure Mode Effects Analysis] for its operational processes, wherein detailed study is done on the impact of the failure in terms of severity, occurrence and detection. A composite score is arrived i.e., Risk Priority Number [RPN], on the basis of which action is taken to further reduce the risk of failure of process. Apart from credit and operating risks, covered in the preceding paragraphs, the Company faces financial risks namely liquidity risk, credit default risks and interest rate risks. Timely mobilization of debt funds is critical for achieving planned growth and profitability. The Company s lending is on a fixed rate basis whereas the borrowing comprises of both fixed and floating rate basis. It also has to ensure that the financial commitments to institutions and banks are met on a timely basis. 10 Equitas Finance Private Limited

18 The Company leverages the relationship of the Group with various lenders to raise debt funds and it has a robust asset liability management process, which monitors and effectively ensures that the liquidity and interest rate risks are well managed. Operational and Financial Results During the year, the Company expanded the used CV business by increasing the network to 131 branches (from 100) spread over 12 States and 1 Union Territory. Equitas Group already had a presence through its microfinance business in many of the areas such as Tamil Nadu, Pondicherry, Maharashtra, Madhya Pradesh, Gujarat, Karnataka and Rajasthan. The progressive geographic diversification is seen as one of the key elements of the Company s risk diversification plan. During the year, the used CV business started operations in New Delhi, Punjab and Haryana. MSME product is targeted mainly at customers of Equitas Micro Finance and in the initial phase all branches of Tamil Nadu were covered. The Company intends to take this product to other States during FY EFPL, during the year, increased the monthly disbursements across the 3 divisions from about Rs.290 crore in Q1 of FY 2015 to about Rs. 410 crore in Q4 of FY 2015 and achieved a total disbursement of about Rs.1,370 crore to over 35,300 customers. This enabled the Company to close the year with a total loan portfolio outstanding of about Rs.1,675 crore. Growth in Interest income as well as Total Income in FY 2015 was 125% over FY Interest Income stood at Rs.257 crore vs. Rs.114 crore in the previous year, while Total Income stood at Rs.296 crore vs. Rs.132 crore in the previous year. The Company posted a Net Profit after Tax of Rs.34.2 crore for the year, which represents a growth of over 116% over FY 2014 number of Rs.15.8 crore. During the year, the Company strengthened its Collection, Legal and Risk teams by recruiting national heads for each of the functions. The various efforts taken during the year are expected to help in scaling up the operations in the coming years while keeping control over quality of the portfolio. Capital and Capital Adequacy During the year, the Holding Company infused additional capital of Rs crore [including Share Premium of Rs crore]. As at the end of the year, the Capital to Risk Adjusted Assets [CRAR] stood comfortably at 38.63%. 11 Equitas Finance Private Limited

19 e) Resources and Treasury The funding for the business is raised through a mix of equity and debt. During the year, the Company has diversified the debt funding sources to include Term Loans from Banks / Financial Institutions, Subordinated Debt and Commercial Paper to improve the asset liability position. The borrowing profile mix as of 31st March, March 2015 is as follows: BORROWING PROFILE AS OF 31ST MARCH 2015 Commercial Paper 1% Subordinated Debt 3% Working Capital Limits 34% Non Convertible Debentures 23% Overdraft 1% Term Loans 38% Working Capital limits are under a bank consortium led by State Bank of India with total sanctioned limits of Rs.492 crore as of 31st March March, During the year, the Company has also borrowed term loans amounting to Rs.600 crore from Banks / Financial Institutions. During the year, the Company issued Non-Convertible Convertible Debentures [NCDs] amounting to Rs.220 crore on private placement basis and also issued Commercial Papers. pers. The Company had also raised Subordinated Debt of Rs.40 crore during the year. Apart from the above, the Company raised funds through securitization transaction amounting to Rs.28 crore during the year. During the year, the Company s credit rating improved improved with CARE upgrading long term rating of the Company from BBB+ to A-.. Further, India Ratings & Research [an associate of FITCH Group] rated the long term debt at A- with Stable Outlook. The Commercial Papers issued by the Company were rated A2+ by India Ratings. Human Resources The Company has provided a wide range of benefits to its employees including health insurance for all its employees and their dependents. The number of employees as at 31stMarch was 2,228 as st against 1,292 employees as at 31 March Equitas Finance Private Limited

20 To enable employees provide quality education to their children, the Company has introduced Children Education Loan for the employees. All the employees are eligible for ESOP and the Company has also provided opportunities to employees to move across business verticals through the Career Enhancement Program [CEP]. New joinees are inducted into the Company through a 2- day training programme, which is conducted once a month in every region. Leadership Development Programme for senior management team of the Company was also facilitated during the year. f) Outlook and challenges NBFCs are increasingly playing a critical role in making financial services accessible to wider set of India s population and, thus, emerging as significant players in the retail finance space. The Company has chosen market segments which have a large market size with few organised players. The gap in regulation with reference to provisioning norms between banks and NBFCs are progressively getting narrowed and would be complete by FY In the backdrop of this, it would make the sector, especially the bigger players, more attractive from the investor community perspective. With trained & committed resource team, sound systems & processes and customer friendly practices, the Company is confident of achieving healthy growth over the years. Some of the products of the Company, especially the used CV finance, remains strongly linked to the overall economic performance of the country and agricultural & industrial outputs. It is always a challenge for the Company to maintain growth with high quality portfolio in the face of an uneven economic growth. The management needs to be continuously focused on micro management to keep the portfolio quality under control. Cautionary Statement Statements in this MD&A 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 30 April 2015 Kuppuswamy P T Chairman Vasudevan P N Director 13 Equitas Finance Private Limited

21 ANNEXUREII CORPORATE GOVERNANCE PHILOSOPHY EQUITAS FINANCE PRIVATE LIMITED REPORT ON CORPORATE GOVERNANCE 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. The Company deals with clients who are by and large, excluded from the mainstream financial markets. Dealing with such vulnerable clients makes it even more important that the Company displays high levels of fairness in transacting with them. Right from inception, the Company s policies and processes have been fine tuned to ensure the same. The Governance and Value Creation Rating given to the Holding Company, M/s Equitas Holdings Private Limited, by CRISIL captures some of the best practices the Company adopts in transacting with its customers / clients as well as employees. The Company's Corporate Governance philosophy has been further strengthened by voluntarily adopting Corporate Governance Guidelines issued by the Ministry of Corporate Affairs, Government of India even though not statutorily required for an unlisted Company. CORPORATE GOVERNANCE RATINGS Equitas Group has been recognized for its voluntary compliance with the highest levels of corporate governance. CRISIL has rated Equitas Holdings Private Limited at Level 2 on Governance & Value Creation Rating, with only 6 other corporates viz., Bharti Airtel Limited, HDFC Bank Limited, Housing Development Finance Corporation Limited, Infosys Limited, Mahindra & Mahindra Limited and Hero Motocorp Limited, being rated at Level 1. Equitas is the highest rated among the unlisted companies in India. BOARD COMPOSITION Currently, the Board comprises of 10 (Ten) Directors. The names and categories of Directors and the number of Directorships are given below: Name Nature of Directorship Other Directorships ($) Kuppuswamy P T (Chairman) Independent Director 2 Jagannath R Independent Director 1 Parthasarathy P Independent Director Nil 14 Equitas Finance Private Limited

22 Name Nature of Directorship Other Directorships ($) Balasubramaniam P S Independent Director 8 George V A Independent Director 1 Sharma V K Independent Director 3 Venkatesh Natarajan Nominee Director 7 Lalitha Lakshmanan Non-Executive Director Nil John Arunkumar Diaz Vasudevan P N Non-Independent Non-Executive Director Non-Independent Non-Executive Director 8 6 $ Excluding Alternate Directorships and Directorships of Foreign Companies / Bodies, wherever applicable CHANGES IN BOARD CONSTITUTION During the year under review, the following changes took place in the constitution of the Board of Directors: i. Mr Sharma V K was appointed as Additional Director with effect from 7 th May ii. iii. iv. Mr Mohit Nijhawan, Director, unfortunately expired on 21 st May 2014 and consequently, ceased to be a Director w.e.f 21 st May Mr John Arunkumar Diaz was appointed as Additional Director with effect from 30 th October Mr Venkatesh Natarajan was appointed as Nominee Director of CDC Group plc with effect from 30 th October v. Mr Gary Jit Meng Ng, Nominee Director appointed by Lumen Investment Holdings Limited (Lumen), resigned from the Directorship of the Company with effect from 24 th December 2014, as a result of Lumen s shareholding in EHPL falling below the threshold limit of 9% of its outstanding equity shares, consequent to which, Lumen withdrew the nomination. vi. Mr Vasudevan P N ceased to be the Managing Director with effect from 29 th January He continues to be a Non Executive Director. vii. Ms Lalitha Lakshmanan was appointed as an Additional Director with effect from 28 th March Equitas Finance Private Limited

23 BOARD MEETINGS & ATTENDANCE During the Financial Year , ten (10) Board Meetings were held on 7 th May 2014, 8 th August 2014, 25 th August 2014, 19 th September 2014, 30 th October 2014, 21 st November 2014, 9 th January 2015, 29 th January 2015, 18 th February 2015 and 28 th March The gap between any two meetings has been less than four months. Name No. of Meetings Held Attended NON-EXECUTIVE Kuppuswamy P T (Chairman) Jagannath R 10 8 Mohit Nijhawan * 1 N I L Parthasarathy P Gary Jit Meng Ng ** 7 N I L Balasubramaniam P S George V A 10 7 Sharma V K 10 4 John Arunkumar Diaz # 6 3 Venkatesh Natarajan # 6 3 Lalitha Lakshmanan $ 1 1 Vasudevan P N *- Mr Mohit Nijhawan expired on 21 st May 2014 **- Mr Gary Jit Meng Ng resigned from the Directorship on 24 th December 2014 #- Mr John Arunkumar Diaz and Mr Venkatesh Natarajan were appointed as Additional Director and Nominee Director respectively with effect from 30 th October 2014 $ - Ms Lalitha Lakshmanan has been appointed as Additional Director with effect from 28 th March 2015 INFORMATION FURNISHED TO THE BOARD In advance of each Meeting, the Board is presented with relevant information on various matters related to the operations of the Company, especially those that require deliberations at the highest level. Presentations are also made to the Board by different functional heads 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 other significant items. The Company takes a lot of efforts to ensure that the quality and comprehensiveness of the information furnished by management to the Board of the Company is of a high order. 16 Equitas Finance Private Limited

24 COMMITTEES OF THE BOARD The Company, at present has five (5) Committees of the Board viz., Audit & Risk Management Committee, Remuneration & Nomination Committee, Asset Performance Monitoring Committee, Resources Committee and Corporate Social Responsibility 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 Committees are circulated to all Directors and placed before the Board for its information and confirmation. The Company has also constituted Asset Liability Management Committee comprising of Senior Executives of the Company to review the Asset-Liability position of the Company on an on-going basis. AUDIT & RISK MANAGEMENT COMMITTEE Composition The Audit & Risk Management Committee, which was reconstituted on 07 th May 2014, is chaired by an Independent Director. All the Members are also Independent Directors. 1. Mr Parthasarathy P, Chairman 2. Mr Jagannath R 3. Mr Balasubramaniam P S 4. Mr George V A 5. Mr Sharma V K Meetings & Attendance The Committee held six (6) Meetings during the year on 15 th April 2014, 7 th May 2014, 8 th August 2014, 7 th October 2014, 30 th October 2014 and 29 th January No. of Meetings Name Held Attended Parthasarathy P, Chairman 6 6 Balasubramaniam P S 6 6 George V A 6 4 Jagannath R 6 5 Sharma V K * 4 4 * Mr Sharma V K was inducted into the Committee in the Board Meeting held on 7 th May Equitas Finance Private Limited

25 Terms of Reference The role of the Audit & Risk Management Committee, among others, 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, the remuneration and terms of appointment of auditors of the Company; 3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors; 4. Reviewing, with the management, the annual financial statements and auditor s report thereon 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 (c) of sub-section 3 of section 134 of the Companies Act, 2013 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. 5. Reviewing, with the management, the quarterly financial statements before submission to the Board for approval; 6. Reviewing, with the management, the statement of uses / application of funds raised through an issue (preferential issue, rights issue, etc), the statement of funds utilized for purposes other than those stated in the offer document / notice and making appropriate recommendations to the Board to take up steps in this matter; 7. Review and monitor the auditor s independence and performance, and effectiveness of audit process; 8. Approval or any subsequent modification of transactions of the company with related parties; 9. Scrutiny of inter-corporate loans and investments; 18 Equitas Finance Private Limited

26 10. Valuation of undertakings or assets of the company, wherever it is necessary; 11. Evaluation of internal financial controls and risk management systems; 12. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems; 13. 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; 14. Discussion with internal auditors any significant findings and follow up there-on; 15. 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; 16. 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; 17. To look into the reasons for substantial defaults in the payment to the debenture holders, shareholders (in case of non-payment of declared dividends) and creditors; 18. To review the functioning of the Whistle Blower mechanism; 19. Approval of appointment of CFO (i.e. the whole-time Finance Director or any other person heading the finance function or discharging that function) after assessing the qualifications, experience and background, etc. of the candidate; 20. 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; 21. Credit and Portfolio Risk Management; 22. Operational and Process Risk Management; 23. Appraising the Board of Directors at regular intervals regarding the process of putting in place a progressive risk management system, risk management policy and strategy; 24. Laying down guidelines on KYC norms; 25. Review on quarterly basis, the securitization / bilateral assignment transactions and investment activities of the Company; 26. Annual review of the Company s Policies framed pursuant to RBI Guidelines and suggest changes, if any required to the Board for adoption; 19 Equitas Finance Private Limited

27 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; 5. The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee. REMUNERATION & NOMINATION COMMITTEE Composition The Remuneration & Nomination Committee of the Board was reconstituted on 30 th October It comprises of 2 (Two) Independent Directors, 1 (One) Nominee Director and 1 (One) Non-Executive Director. 1. Mr Balasubramaniam P S, Chairman 2. Mr George V A 3. Mr Venkatesh Natarajan 4. Mr John Arunkumar Diaz Meetings & Attendance The Committee held two (2) Meetings during the year on 29 th January 2015 and 28 th March Name Held No. of Meetings Attended Balasubramaniam P S, Chairman 2 2 George V A 2 1 Venkatesh Natarajan 2 1 John Arunkumar Diaz Equitas Finance Private Limited

28 Terms of reference 1. To review the structure, size and composition (including the skills, knowledge and experience) of the Board at least annually and make recommendations on any proposed changes to the Board to complement the Company s corporate strategy. 2. Formulation of the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy relating to the remuneration of the directors, key managerial personnel and other employees. 3. Formulation of criteria for evaluation of Independent Directors and the Board. 4. Devising a policy of Board diversity 5. Identifying persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, and recommend to the Board their appointment and removal and Succession planning for Director, in particular the Chairman and the Chief Executive. 6. To assess the independence of Independent Non-Executive Directors. 7. To recommend remuneration payable to Non-Executive Directors of the Company from time to time; 8. Annual appraisal of the performance of the Managing Director and fixing his terms of remuneration. 9. Annual appraisal of the senior management team reporting to the Managing Director. 10. Annual performance appraisal process review of the Staff. RESOURCES COMMITTEE Composition The Resourcing Committee of the Board was renamed as Resources Committee and was reconstituted on 30 th October It comprises of three (3) Independent Directors and one (1) Non - Independent Non - Executive Director. 1. Mr Jagannath R, Chairman 2. Mr Balasubramaniam P S 3. Mr Parthasarathy P 4. Vasudevan P N 21 Equitas Finance Private Limited

29 Meetings & Attendance The Committee held nineteen (19) meetings during the year. Name No. of Meetings Held Attended Kuppuswamy P T, Chairman* Jagannath R, Chairman* 5 5 Balasubramaniam P S Parthasarathy P ** 5 5 Vasudevan P N * - Mr Kuppuswamy P T was the Chairman till the Committee was reconstituted on 30 th October 2014 and Mr Jagannath R is the Chairman with effect from 30 th October ** - Mr Parthasarathy P was inducted into the Committee with effect from 30 th October 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 upto such limits as approved by the Board / Shareholders from time to time, such limit to be exclusive of any money borrowed by or on behalf of the Company otherwise than by 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. - To approve changes in persons authorized to operate current and other accounts and their signing limits for operating such accounts - To approve closure of current and other accounts of the Company held with various banks. 3. To allot Non Convertible Debentures (NCD) from time to time, to one or more subscribers, in one or more tranches on such terms and conditions as it thinks fit, subject however that the total amount of NCDs so issued during a financial year shall not exceed the limits approved by the Board /Shareholders from time to time. 22 Equitas Finance Private Limited

30 ASSET PERFORMANCE MONITORING COMMITTEE Composition The Asset Performance Monitoring Committee, which was constituted on 13 th November 2013, comprises of three (3) Independent Directors. 1. Mr Jagannath R, Chairman 2. Mr Balasubramaniam P S 3. Mr Parthasarathy P Meetings & Attendance The Committee held four (4) Meetings during the year on 15 th April 2014, 8 th August 2014, 16 th October 2014 and 19 th January No. of Meetings Name Held Attended Jagannath R, Chairman 4 4 Balasubramaniam P S 4 4 Parthasarathy P 4 4 Terms of reference The terms of reference of the Asset Performance Monitoring Committee include: i. To review the existing Receivables Management system of the Company; ii. To review the MIS and other support information system that the Company currently has; iii. To review the policies on repossessed and unsold vehicles; iv. Any other matter related to the above. CORPORATE SOCIAL RESPONSIBILITY COMMITTEE Composition The Corporate Social Responsibility Committee, which was constituted on 7 th May 2014, comprises of three (3) Independent Directors. 1. Mr Parthasarathy P, Chairman 2. Mr George V A 3. Mr Sharma V K 23 Equitas Finance Private Limited

31 Meetings & Attendance The Committee held two (2) Meetings during the year on 8 th August 2014 and 29 th January Name No. of Meetings Held Attended Parthasarathy P, Chairman 2 2 George V A 2 1 Sharma V K 2 2 Terms of reference The terms of reference of the Corporate Social Responsibility Committee include: 1. Review the Mission of the Organisation from time to time and ensure it stays aligned to changing contexts of the Organisation. 2. Ensure alignment of the Business goals and objectives of the Company in line with the Mission of the Organisation. 3. Bring specific focus on certain excluded segments of client community and set benchmarks for the same. 4. Review all the social activities of the Company and suggest to the Board of Trustees suitable measures for enhancing the efficacy of these activities. 5. Deploy such tools of measurement as may be relevant and available from time to time to study the impact of the Social Performance activities of the Company and benchmark the same with other MFIs in India and around the world. 6. Disseminate information related to the Social Performance of the Organisation in such manner as deemed appropriate. 7. Review the amount spent on social activities and advise the Board on its efficacies. 8. To formulate and recommend to the Board the CSR Policy of the Company. ASSET & LIABILITY MANAGEMENT COMMITTEE (ALCO) Composition & Meetings The Asset & Liability Management Committee was constituted on 27 th April 2012 as per the guidelines issued by the RBI in this regard for Systemically Important NBFCs. The Committee was constituted with the following officials of the Company: 24 Equitas Finance Private Limited