Equitas Holdings Private Limited

Transcription

1 Equitas Holdings Private Limited

2 CORPORATE INFORMATION Board of Directors Name Designation 1. Rangachary N Chairman and Non-Executive Director 2. Arun Ramanathan Non-Executive Director 3. Jayshree Ashwinkumar Vyas Non-Executive Director 4. Kuppuswamy P T Non-Executive Director 5. Nanda Y C Non-Executive Director 6. Rajaraman P V Non-Executive Director 7. Sharma V K Non-Executive Director 8. Srinivasan N Non-Executive Director 9. Paolo Brichetti Nominee Director 10. Raman N Nominee Director 11. Srinivasan Nagarajan Nominee Director 12. Viswanatha Prasad Subbaraman Nominee Director 13. Vasudevan P N Managing Director Key Managerial Personnel 1. S.Bhaskar Chief Financial Officer 2. Jayashree S Iyer Company Secretary Registered Office Statutory Auditors Bankers Phase II, 4 th Floor, Spencer Plaza, No.769, Anna Salai, Chennai Tel: Fax: corporate@equitas.in Website: CIN: U65100TN2007PTC Deloitte Haskins & Sells 8 th Floor, ASV N, Ramana Towers, 52, Venkatnarayana Road T.Nagar, Chennai Tel: Fax: Axis Bank Limited ICICI Bank Limited State Bank of India The Hongkong and Shanghai Banking Corporation Limited Equitas Holdings Private Limited

3 Equitas Holdings Private Limited

4 TABLE OF CONTENTS Chairman's Address... 5 Directors Report Management Discussion and Analysis Corporate Governance Report Auditors Report - Standalone Financial Statements - Standalone Auditors Report - Consolidated Financial Statements - Consolidated Equitas Holdings Private Limited

5 Equitas Holdings Private Limited

6 Financial Highlights (Consolidated) as of March 31, 2015 Rs in Cr. Particulars Gross Income Profit After Tax (4.79) Shareholders' Funds , Paid-up Equity Share Capital [Rs.10/- each] Reserves and Surplus Borrowings , , , Loans Outstanding (AUM) , , , Book Value per Share (Rs.) (*) Earnings per Share (Rs.) (Diluted) 6.54 (1.08) (**) Per Share value for has been impacted due to Bonus issue and fresh infusion of equity. If Bonus issue is not considered, the impact is as follows: (*) Book Value would have been Rs.96/42 per share (**) EPS would have been Rs.11/75 per share Product-wise Loan Portfolio (Consolidated) 1 Equitas Holdings Private Limited

7 Product-wise Disbursement (Consolidated) Company-wise Product Portfolio 4, Equitas Holdings Private Limited

8 Company-wise Product Disbursements 770 Consolidated PAT & ROE 8.45% 3 Equitas Holdings Private Limited

9 Branch Network as on 31st March 2015 Network as of 31 st March 2015 No. of States No. of Branches Equitas Micro Finance Private Limited Equitas Finance Private Limited Equitas Housing Finance Private Limited Equitas Holdings Private Limited

10 EQUITAS HOLDINGS PRIVATE LIMITED From the Chairman s Desk Dear Members, One more year of our functioning has passed. The past year has been an eventful year for more than one reason as you would get to know, as you proceed along. Let me greet you all for your sustained support and cooperation in our functioning. I would like to begin by recalling the following statements from our past Annual Reports: Annual Report : We began the year with the promise of building a successful business out of a huge untapped opportunity in micro-finance. We have moved forward in this direction, building a business model which is capable of rapid scalability and efficient micro-finance delivery; powered by a centralized back-office and a wide range of process innovations. Towards maximizing customer service, we believe the long-term financial health of a microfinance Company is linked to the difference it can bring about in its members lives. Accordingly, Equitas is working with other partners in addressing members comprehensive needs such as children s education, vocational training & health. Annual Report : Equitas was born not only to be in the business of micro-finance. The founding team and our colleagues who helped establish the organisation are imbibed with a spirit of service coupled with a burning desire to found an organisation wholly transparent, ethically sound, financially stable and be a model outfit that will engage itself in the betterment and significant improvement of its members and the community at large. We in Equitas have a mission a mission to develop the educational, financial, health and economic conditions of the members of the society with whom it interacts and in whose development it feels its relevance, growth, recognition and efforts lie. Annual Report : The Company has consistently sought to distinguish itself in its various actions such as its unique pricing philosophy, transparent communication of real borrowing rate to clients etc. We continue to set new global benchmarks in our effort to remain a responsible lender. The Company has put in place many philosophies and policies 5 Equitas Holdings Private Limited

11 such as the following: Voluntary cap on RoE, Voluntary Cap on Managerial Pay & Lending Rate Philosophy. 1 Though the stress that the micro-finance sector has gone through in the past few months has taken its toll on Management time, the Company has remained steadfast in its pursuit of offering a range of developmental services to its clients. Some of the highlights of the same are a total of 425,660 beneficiaries of our free medical camps, 193,690 beneficiaries of our vocational skill developmental training, 33,628 free spectacles distributed, 9275 free cataract operations completed, 49 tuition centres covering about 3100 children and 2 schools with about 350 students studying. The schools are truly the feather in our cap. I had the opportunity to visit one of the schools and the quality of holistic education being imparted to children from the under-privileged sections of the society is truly transformative. Feedback from parents and children continue to encourage us to do more in this direction. The schools are ear-marked certain budgets after which they would be self-sustainable. 2 Annual Report : I must mention at this stage that when we established Equitas in 2007 and set up our business, we felt the need to be as close to our clientele as possible, serve them in many ways that were socially and economically relevant, act as transparent, responsive and responsible institution to secure a better life for our clients. I am proud to say that our fundamentals have not changed despite setback in certain geographical areas. We want an Equitas customer to be holistically served in the most responsible manner possible and the feeling that we have achieved this goal is what has made us unique. It is a matter of great pride to note that the new set of regulations brought in by RBI for the NBFC-MFI sector last year is very similar to the model of Responsible Lending that, we at Equitas have practiced right from our inception in At this juncture, it will be appropriate to highlight the social initiatives undertaken by the Company. Equitas clear focus on social initiatives is borne out by the fact that within 2 months of its inception, Equitas Development Initiatives Trust (EDIT) was formed... By benefiting more than 1 million members through its social initiatives, Equitas has set another benchmark in terms of holistic approach to clients and their families and has emerged a pioneer in this field. Annual Report : The Company conducted an extensive exercise (involving multiple stakeholders including the investors, independent directors and Management team) to develop a joint vision for the Equitas group. Through this exercise, the Company reaffirmed its focus towards becoming a Financier to the unbanked. 1 Abridged for brevity 2 Abridged for brevity 6 Equitas Holdings Private Limited

12 The Company continues to expand its bouquet of social initiatives, suitably guided by its eminent Board of Trustees. To further strengthen these activities, the micro-finance subsidiary s Board has appointed a CSR committee of the Board to support the Trust in achieving its goals. Annual Report : When we launched Equitas in 2007, we stood committed then, as we continue to be today, to a regime of transparency and accountability, to professional competence which could be harnessed to public benefit and finally to a system of delivery that would be quick and responsive. And the Fairness & Transparency plank of the Company is not an empty cliché but has been demonstrated consistently through our various policies and resultant actions over and over again. This ambitious desire to create the Best in Class and sustainable institution guided us all through these years and are still guiding us in our activities. 3 As all of you are aware, we have always stood committed to the economic and social development of the society around us. Equitas took a voluntary decision of contributing 5% of its profits to EDIT right from inception, as against the statutory 2% requirement now prescribed. Within seven years of its existence, the Company operates five schools through its Trust, for children belonging to low-income households besides undertaking what is arguably the largest medical services programme by any Corporate in India. The legacy continues continues with the same level of passion and commitment that we started with. At Equitas, we take pride not just in our sustained performance, but also in our commitment to the core values of fairness & transparency in delivering highly efficient & best in class service to our customers. This consistent commitment is borne out in the above extracts from the past Annual Reports. Our commitment to social initiatives has also been clearly demonstrated every year. We are clear that these tenets are central to the identity of Equitas and will be inherent in any activity Equitas undertakes. Equitas is fairly well diversified into micro-finance, used commercial vehicle finance, housing finance & micro enterprise loans. In FY , the Company introduced the micro enterprise loan (loans in the range of Rs.50,000 Rs 5 lakhs) on a pilot basis. At this level of micro enterprise, there are hardly any choices for these clients to borrow from organized financiers, and are often left to deal with unorganised lenders. This product addresses a key requirement of such clients and in the subsequent year, has scaled up well, reaching a loan outstanding of about Rs 375 crore with a good quality portfolio. 3 Abridged for brevity 7 Equitas Holdings Private Limited

13 Financial Performance: The overall Equitas Group has had a satisfactory performance over the past years. The loan outstanding has grown to Rs.4010 Cr by end of March 15, representing a growth of about 60% over the previous year. The number of clients served has also grown significantly to about 2.5 million. The Group now operates out of 13 States. The Assets under Management (AUM) are Rs.4010 Cr and the Profit of the Group for FY is Rs.106 Cr out of which Equitas Finance Private Limited and Equitas Micro Finance Private Limited have contributed around 96%. The new products of used commercial vehicle finance, micro enterprise finance and housing finance have all done well, contributing to about 48% of the total loan outstanding of the Group. Social Performance: The social activities of the Company continue to benefit a large number of people. Our relationship with over 850 hospitals across 6 States enables us to conduct annually nearly 350 medical camps, benefiting about 65,000 people. Cumulatively, we have served over 2.8 million people through such camps. Our skill trainers have trained nearly 3.6 lakh people on various cottage skills. The 6 schools run by Equitas Development Initiatives Trust provide high quality English medium education to about 3,500 students, almost all of whom come from families which are economically and socially challenged. Mission: Empowering through Financial Inclusion The Company is committed to its Mission of Empowering through Financial Inclusion. The Company has consistently been identifying and bringing to the market, financial products addressed to the needs of those segments of people who are not sufficiently or well served by the mainstream financial institutions. Vision: To Serve 5% of Indian Households by 2025 The Company through its operating subsidiaries, aims to serve 5% of Indian households over the next 10 years. It currently serves about 1% of Indian households. 8 Equitas Holdings Private Limited

14 Recognitions: In working towards this Vision, the Company looks forward to setting new benchmarks in terms of customer-focus, process efficiency as well as fairness and transparency. CRISIL has rated the Company at Level 2 on Governance and Value Creation rating, with only six other corporates in India at a higher level. B-Lab, an American non-profit, publishes GIIRS Ratings (Global Impact Investment Rating System) to provide investors with rigorous, comprehensive and comparable ratings of a Company s social & environmental impact. In January 2015, Equitas was assigned Platinum Impact Business-Model rating and 5-star Impact Operations Rating in terms of impact on community, workers & governance. This is the highest rating available under this rating model. I envision a great year ahead and will certainly count on your continued patronage and support. Your group continues to participate in full measure in the process of financial inclusion agenda set by the Union Government and Reserve Bank of India. An opportunity has presented itself in making an application to the Reserve Bank for grant of license to start a Small Finance Bank and in February 2015, the Company has applied for the same. We at Equitas, believe that the activities of a Small Finance Bank will be an umbrella-like Institution, under which all our existing activities as well as additional banking services would foster an ideal model for further social and economic betterment of our client segments. We pray to God to give us the strength to stay true to the Mission of the Company and in creating a sustainable and long term value for all the stakeholders. God bless you all. N Rangachary Chairman 9 Equitas Holdings Private Limited

15 DIRECTORS REPORT EQUITAS HOLDINGS PRIVATE LIMITED CIN: U65100TN2007PTC 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 Eighth Annual Report together with the audited Accounts of the Company for the Year ended 31 st March 2015 (FY ). 1. Overview The Company is a non-systemically important Core Investment Company (CIC-non-SI) and has been exempted from registration under Section 45 IA of RBI Act, The Company has not accepted any public deposits during the FY and there has been no change in the business of the Company during the said period. 2. Financial Results (Rs in lakh) For the Period ended 31 st March 2015 For the Period ended 31 st March 2014 Gross income Less: Total Expenditure Profit before taxation Provision for taxation Profit after taxation Transfer to Statutory Reserve Transfer to General Reserve Nil Nil 3. Dividend The Directors do not recommend any dividend for the year. 10 Equitas Holdings Private Limited

16 4. Operational highlights The Company is a CIC-non-SI and has three wholly owned operating subsidiaries. These subsidiaries are engaged in financing activities viz.: Sl. No Name of the Subsidiary Activities 1. Equitas Micro Finance P Ltd Providing micro loans to people from the EWS/LIG income groups 2. Equitas Finance P Ltd Used Commercial Vehicle Finance, principally for first time vehicle buyers Micro Enterprise loans 3. Equitas Housing Finance P Ltd Mortgage loans for self-employed business people Micro Housing Finance loans for people typically from EWS/LIG income segments Affordable Housing Finance loans The details of operations are in the annexed Management Discussion and Analysis Report. 5. Management Discussion and Analysis The Management Discussion and Analysis Report, highlighting the important aspects of the business of the Company and its Subsidiaries is attached to this Report as Annexure-I. 6. Subsidiaries (Rs in lakhs) Sl. No Name of the subsidiary Equitas Micro Finance P Ltd 2. Reporting period for the subsidiary concerned, if different from the holding Company s reporting period 3. Reporting currency and Exchange rate as on the last date of the relevant Financial Year in the case of foreign subsidiaries. Equitas Finance P Ltd Equitas Housing Finance P Ltd Equitas B2B Trading P Ltd N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. 11 Equitas Holdings Private Limited

17 4. Share capital Reserves & surplus (64.72) (200.00) 6. Total assets Total Liabilities Investments Turnover Profit before taxation (35.28) 11. Provision for taxation Profit after taxation (36.14) 13. Proposed Dividend Nil Nil Nil Nil 14. % of shareholding 100% 100% 100% 100% No new Company has become the subsidiary of the Holding Company during the Financial Year. Equitas B2B Trading P Ltd, a subsidiary Company has filed an application with Registrar of Companies Tamil Nadu for striking off the name of the Company from the Register of Members under Section 560 of the Companies Act, 1956 on 31 st March Consolidated Financial Results (Rs in lakh) For the Period ended 31 st March 2015 For the Period ended 31 st March 2014 Gross income 75, , Less: Total Expenditure 59, , Profit before taxation 16, , Provision for taxation 5, , Profit after taxation 10, , Transfer to Statutory Reserve 2, , Transfer to General Reserve Nil Nil In accordance with the Companies Act, 2013 the audited consolidated financial statement is provided in the Annual Report. 12 Equitas Holdings Private Limited

18 7.2 Banking License Application During the year, RBI invited applications for forming Small Finance Banks and Payment Banks. The Company has made an application to RBI for a license to promote a Small Finance Bank. As per the application for license, if the Company is given the license, the operations of the existing subsidiaries will be consolidated under a single wholly owned subsidiary which will operate as a Small Finance Bank. 8. Material changes after the Balance Sheet Date (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 The Company has been assigned CRISIL GVC Level 2 rating by the CRISIL. This Governance and Value Creation (GVC) rating indicates very high capability of the Company 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. However, on a voluntary basis, a report on Corporate Governance is attached to this Report as Annexure-II. Details on number of Meetings of Board and Committees and composition of various Committees of the Board including their Terms of Reference are in the annexed Corporate Governance Report. The Company has devised a Vigil mechanism for directors and employees, details whereof is available on the Company s website at Corporate Social Responsibility 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, a Public Charitable Trust. CSR activities are carried out through this Trust. A report on Corporate Social Responsibility is attached to this Report as Annexure-III. 13 Equitas Holdings Private Limited

19 12. Directors and Key Managerial Personnel 12.1 While selecting Directors, the Company looks for an 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 of Directors, KMP and other employees During the Financial year ended 31 st March 2015, Ms. Jayshree Vyas was appointed as Additional Director with effect from 12 th November The Directors recommend appointment of Ms. Jayshree Vyas as Independent Director of the Company. Appropriate resolution for appointment of Ms. Jayshree Vyas as Independent Director of the Company is being placed for approval of the shareholders at the ensuing Annual General Meeting Mr Gary Jit Meng Ng ceased to be a Nominee Director on the Board of the Company with effect from 24 th December, 2014 due to withdrawal of his nomination by Lumen Investment Holdings Limited, consequent to Lumen Investment Holdings Limited s shareholding in the Company falling below the threshold limit of 9% of the Equity Shares in issue During the Financial year ended 31 st March 2015, Mr Bhaskar S was appointed as Chief Financial Officer of the Company with effect from 1 st November, Mr. Vasudevan P N resigned as Company Secretary of the Company and Ms Jayashree S Iyer was appointed as Company Secretary of the Company with effect from 1 st November, Mr Vasudevan P N, retires by rotation this year, and being eligible, offers himself for reappointment. 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. 13. Overall Remuneration Details of all elements of remuneration package such as salary, benefits, bonuses, stock options, pension, etc., of all the Directors are given in the Corporate Governance Report annexed hereto as Annexure-II. The Directors of the Company are not entitled to stock option. Details of remuneration as required to be disclosed under Section 197(12) of Companies Act, 2013 read with Rule 5 of Companies (Appointment and 14 Equitas Holdings Private Limited

20 Remuneration of Managerial Personnel) Rules, 2014 are attached to this Report as Annexure-IV. 14. Evaluation of Board Performance The performance of the Board, Audit & Risk Management Committee, Remuneration & Nomination Committee and that of individual Directors for the 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 to this Report as Annexure-V. 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 reappointment. The Company has received a letter from them, stating that they satisfy the criteria provided in 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 reappointment of M/s Deloitte Haskins & Sells, Chartered Accountants, as Auditors of the Company for a period of 2 years commencing from the conclusion of the ensuing AGM till the conclusion of the 10 th AGM to be held in the Year 2017, subject to ratification by the shareholders in every AGM. 17. Secretarial Auditor The Board appointed Dr B Ravi, Practising Company Secretary to conduct Secretarial Audit for the Financial Year The Secretarial Audit Report for the Financial Year ended 31 st March, 2015 is attached to this Report as Annexure-VI. Suggestions and advices in the Report will be fully adopted. 18. Information as per Section 134 (3) (q) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, The Company has no activity relating to conservation of energy or technology absorption. 15 Equitas Holdings Private Limited

21 18.2 During the year, the Company did not have any foreign currency earnings. Foreign currency expenditure of Rs 20 lakh was incurred by the Company. 19. Details of Employee Stock Option Scheme On 17 th December 2007, the Company established an Employees Stock Option Scheme 2007 (ESOP Scheme 2007). Under the plan, the Company was authorized to issue upto 56,20,000 Equity Shares of Rs.10 each to eligible employees of the Company and its Subsidiaries. Employees covered by the plan are granted options to purchase shares of the Company subject to the terms and conditions of the scheme. The Remuneration and Nomination Committee constituted by the Board of Directors of the Company administers the plan. Effective 10 th November 2012, the Company established a new employee stock option scheme titled Equitas Employees Stock Option Scheme, 2012 (ESOP Scheme 2012). Under the plan, the Company was authorized to issue upto 10,00,000 Equity Shares of Rs.10 each to eligible employees of the Company and its Subsidiaries. Further, the outstanding options under the ESOP Scheme 2007 have been transferred and made available for grant under the new scheme. Effective from 18 th July 2014, the Company established a new employee stock option scheme titled Equitas Employees Stock Option Scheme, 2014 (ESOP Scheme 2014). Under the plan, the Company is authorized to issue upto 1,05,00,000 (Post bonus in the ratio of 2:1) Equity Shares of Rs.10 each to eligible employees of the Company and its Subsidiaries as per the terms and conditions of the scheme. Further, the outstanding options under the ESOP Scheme 2012 has been transferred and made available for grant under the new Scheme. - The disclosure requirements under Rule 12(2) of Companies (Share Capital and Debentures) Rules, 2014 pertaining to the Scheme as at 31 st March 2015, are given below: As of 31 st March 2015, 1,07,61,187 options (As at 31 st March ,15,970) (net of forfeitures) options were outstanding, which were granted at various exercise prices. (a) Options granted (i) in force as on ,15,970 (ii) Granted during the year 121,78,366 1,55,94,336 (b) Options vested; 42,82, Equitas Holdings Private Limited

22 (i) Vested and exercised 11,14,247 (ii) Vested, yet to exercise 31,67,925 (c) Options exercised; 11,14,247 (d) the total number of shares arising as a result of exercise of option; 11,14,247 (e) Options lapsed; 37,18,902 (f) the exercise price for the options granted during the year; (In Rs.) (g) variation of terms of options; (h) money realized by exercise of options; / Nil Rs lakh (i) total number of options in force; [(a)-(b)(i)-(e)] 1,07,61,187 (j) employee wise details of options granted during the year to;- (i) key managerial personnel; (ii) any other employee who receives a grant of options in any one year of option amounting to five percent or more of options granted during that year. (iii) identified employees who were granted option, during any one year, equal to or exceeding one percent of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant; Nil Nil Nil The Company has not issued any Equity Shares with differential rights or Sweat Equity Shares during the financial year. 20. Particulars of contracts or arrangements with related parties During the year, the Company has purchased a fixed asset viz., car from its subsidiary Company, Equitas Micro Finance P Ltd at its fair economic value of Rs lakhs, for use by Mr Vasudevan P N, MD. The same has been approved by the Board on 7 th May Risk Management The Company is a Core Investment Company and its operations are limited to a CIC. The risks therefore relates to investments made into its subsidiaries. The operations of each of the subsidiaries and the risks faced by them and the risk mitigation tools 17 Equitas Holdings Private Limited

23 followed to manage them are reviewed periodically by the Audit and Risk Management Committees and the Boards of the respective Companies. Details of the same are covered in the Management Discussion and Analysis Report. 22. Internal Financial controls The Company s resources are deployed and monitored in an appropriate manner by the Audit and Risk Management Committee under the overall supervision of the Board. The financial statements are prepared in accordance with the accounting standards issued by the ICAI. 23. Extract of Annual Return The extract of Annual Return is attached to this Report as Annexure-VII. 24. Loans/Guarantee/Investments During the year the Company has made loans amounting to Rs crore to its wholly owned subsidiaries viz., Equitas Housing Finance Private Limited and Equitas Finance Private Limited. The guarantees extended by the Company on the loans availed by its wholly owned subsidiaries amounting to Rs 1910 crore. The Company, during the year has invested Rs crore in its wholly owned subsidiary, Equitas Finance P Ltd. 25. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 The Company has in place a Policy on Prevention of Sexual Harassment 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. No complaint has been received by the Company under this Policy during the year There have been no significant and material orders passed by Regulators or Courts or Tribunals impacting the going concern status and the future operations of the Company. 18 Equitas Holdings Private Limited

24 Acknowledgement The Directors gratefully acknowledge the excellent relationship with the Boards of the Subsidiary Companies and their continued support for the various activities. The Directors thank the Financial Institutions and Banks associated with the Company for their support. The Directors also thank the employees of the Company and the Subsidiaries for their commitment and contribution towards the growth of the Company. For and on behalf of the Board of Directors Chennai 7 th May 2015 P N Vasudevan Managing Director N Rangachary Chairman 19 Equitas Holdings Private Limited

25 Annexure-I EQUITAS HOLDINGS PRIVATE LIMITED MANAGEMENT DISCUSSION & ANALYSIS Introduction Equitas Holdings Private Limited (EHPL) is the Holding Company of the Equitas group of companies. This is the Company s eighth Annual Report to its shareholders. EHPL is a Core Investment Company holding investments in subsidiary companies and falling within the definition of Core Investment Company non Systemically Important (CIC non SI) as per the RBI regulations. Apart from holding investments in subsidiary companies, EHPL provides loans to its subsidiaries and corporate guarantees for their borrowings. The Company s wholly owned subsidiaries are engaged in the following businesses: Name of the Subsidiary Business Equitas Micro Finance Private Limited (EMFPL) Equitas Finance Private Limited (EFPL) Equitas Housing Finance Private Limited (EHFPL) Microfinance Used commercial vehicle finance, Loan against property and SME financing. Housing Finance & Loan against Property Equitas B2B Trading Private Limited (B2B) Wholesale trading (*) *started on a pilot basis but discontinued operations due to non-viability. The company has applied to Registrar of Companies-Tamil Nadu for striking off of its name from the Register of Companies u/s 560 of the Companies Act, 1956, on 31 th March During the year, the Company raised Rs.325 crore of additional equity capital. Two new investors, viz. DEG (Deutsche Investitions -und Entwicklungsgesellschaft) and Creation Investments Equitas Holdings LLC invested Rs crore and the balance amount was invested by some of the existing investors. 20 Equitas Holdings Private Limited

26 The Company made further investment of Rs crore in the equity capital of its subsidiary company Equitas Finance Private Limited during the year to strengthen its capital base. This Investment was made at a premium of Rs 6.45 per share. With the above, the Company s total investments in the subsidiaries are as follows: Name of the Company Investment (Rs. Crore) as on Investment (Rs. Crore) as on EMFPL EFPL EHFPL B2B 0.00* 2.00 *Value of the investment is fully eroded. Hence it is valued at nil value. The Company also is the author of a Public Charitable Trust, Equitas Development Initiatives Trust (EDIT). EDIT carries out various philanthropic activities. EDIT implements the Corporate Social Responsibility (CSR) activities of the Company and its subsidiaries. Banking License Application: During the year, RBI invited applications for licensing of Small Finance Banks (SFB) and Payment Banks. The Company has made an application to RBI for a license to promote a Small Finance Bank. As per the application for license, if the Company is given the license, the operations of the existing subsidiaries will be consolidated under a single wholly owned subsidiary which will operate as a small finance bank. Business: The Company s subsidiaries are primarily focused on providing finance to those who are not effectively serviced by the formal financial sector. The size of the opportunity is regarded to be large for any company that deploys the right model to access and assess the target segment. The unmet working capital needs of the MSME sector is estimated by the Planning Commission to be over Rs 10 Lakh crore annually. The Company s subsidiaries seek to address this unmet demand by offering products focused on the target segment s specific requirements. Currently, the products offered include microfinance, used commercial vehicle finance, SME finance, housing & mortgage loans. 21 Equitas Holdings Private Limited

27 Abridged Statement of Profit and Loss (Consolidated) Rs in Lakhs Particulars Growth % Revenue Revenue from Operations 75, , % Other Income % Total Revenue 75, , % Expenses Employee benefits expenses 15, , % Finance Costs 29, , % Depreciation and Amortization expenses % Loan provision and write offs 5, , % Other Expenses 8, , % Total Expenses 59, , % PBT 16, , % Tax Expenses 5, , % PAT 10, , % Basic EPS (Rs.) % Equitas Holdings Private Limited (standalone financials) The source of income is from interest earnings from loans to subsidiaries and from investment of surplus funds. The expenses are mainly corporate, salary cost of employees, Board related expenses as well as costs incurred for sharing of certain infrastructure of subsidiaries. The Company made a profit after tax of Rs lakhs for the year. Summary of outlook for subsidiaries Each of the subsidiaries of the Company is focused on providing loans to segments of the population which are not effectively serviced by the mainstream financial service players. 22 Equitas Holdings Private Limited

28 The overall demand for the products offered by the Subsidiaries, such as Micro loans, Micro Enterprise Loans, Used Commercial Vehicle Finance loans, Affordable Housing Finance loans etc is huge. Significant parts of these demands are not serviced by existing financial service providers. This gives an opportunity for the subsidiaries to provide valuable service to these segments of the population. All the products, other than Micro Finance loans are secured in nature. As of March 2011, the Equitas Group s loan outstanding was 100% micro finance loan and hence unsecured. Over the next few years, the plan was to grow the secured loans within the Group and reach a mix of about 75% secured and 25% unsecured loan portfolio at the Group level. As a part of this journey, as of March 2015, the secured part of the portfolio at the Group level has reached 47%. Detailed analysis of the business of each of the Subsidiaries is given below. Equitas Micro Finance Private Limited (EMFPL): This is a wholly owned subsidiary of the Equitas Holdings Private Limited. EMFPL and is registered as NBFC-MFI with RBI. Customer Segment: Micro Finance provides small loans of around Rs.12,000 to Rs.25,000 to people who are in the EWS/LIG income category. RBI has put in a regulatory framework, which, among others, also defines the income level of customers who can be serviced by MFIs. Currently this stands at Rs.1.6 lakhs of annual income for households in urban areas and Rs.1.2 lakhs of annual income for households in rural areas. The Self Help Group (SHG) concept has been prevalent in India for a few decades now. Under the SHG concept, NGOs help form groups of (mostly) women who are then, linked to a bank. The bank provides loan to the SHG. The SHG in turn, either distributes this amount within its members as smaller loans, or in some cases, the SHG undertakes a common business for which the bank loan is used as capital. The demand for loans from these segments of people is very large and is not effectively serviced by the Bank-SHG linkages. This has led to the growth of MFIs who also undertake similar services. Regulatory Framework: RBI has laid down a strong regulatory framework for the MFI sector. As of now, Following are some of the important aspects of the regulations: 23 Equitas Holdings Private Limited

29 Household annual income of families who avail micro loans from MFIs should be not more than Rs.1.6 lakhs in urban and Rs.1.2 lakhs in rural. Not more than 2 MFIs can give loan to the same borrower The total loan outstanding of both the MFIs to the same borrower should not exceed Rs.1 lakh at any point in time The margin (i.e. the difference between cost of funds of the MFI and its lending rate) not to exceed 10% in case of MFIs with asset size exceeding Rs.100 crore and 12% in other cases Loans above Rs.15,000 should necessarily have a minimum tenor of 2 years. Borrowers should be given a choice of frequency of repayment viz. weekly, fortnightly or monthly Benefit of priority sector classification extended to lending of banks to MFIs. Business environment: Given the demand for such loans, the MFI sector is expected to record a sustained high growth over the next few years. For the year ended March 2015, the MFI sector grew by 42% (Source: Micro Finance Institutions Network s publication Micro meter ). The MFIs have established themselves as efficient and effective Institutions for the last mile connectivity to low income clients. They are expected to play a supportive role to the initiatives on financial inclusion of the regulators and government. Launch of MUDRA: Launch of Micro Unit Development & Refinancing Agency (MUDRA) is an important development. MUDRA is to focus on funding the informal sector micro entrepreneurs who are estimated to be around 5.77 crore. Microfinance Institutions Network (MFIN) is actively engaged in giving inputs in framing the policy frame work. The CEO of MFIN has been invited to join the board of MUDRA. The RBI regulations and the MFI industry self-regulation have significantly de-risked this sector. RBI has recognized MFIN the industry body as a Self-Regulatory Organization (SRO) which is an important step towards reposing the confidence on the sector. The Credit Bureau initiative supported by the industry association has enabled the industry to confirm to the RBI s direction that there shall not be more than 2 MFI loans to a single borrower. This has helped significantly in addressing the concern of over lending to same customer, and helps prevent creating stress at the client level and a bubble at the sector level. 24 Equitas Holdings Private Limited

30 Operations EMFPL, right from its inception, has been focused on creating a highly efficient platform to deliver micro loan services to clients. It has also put in place a state-of-art risk management system for controlling operations risk. It has built a robust technology backbone to process large number of transactions in a seamless manner. The earlier industry-leading OMR (Optical Mark Recognition) technology is now replaced by front end tablet. Client acquisition process is now a paperless process. Applications are entered directly into the tablet, photograph of clients and KYC documents are captured on the tablet and it moves to head office for processing. The tablet process has been rolled out during the previous year to about 60 branches and in the current year, it is expected to stabilize across EMFPL, bringing in substantial savings in cost and time, besides higher levels of validation. The MFI sector is in the phase of a sustainable growth, given the large demand and a strong regulatory framework. EMFPL disbursed Rs.2129 crore during the year resulting in the total loan outstanding (including securitised loan outstanding) going up from Rs.1503 crore as on 31 st March, 2014 to Rs.2144 crore as on 31 st March, Thirty Eight branches were added with two in Tamil Nadu and the rest outside Tamilnadu, taking the overall branches to 361. EMFPL identified and launched a number of initiatives to improve staff and branch productivity through a business process review. These initiatives would help to optimize the cost of operation. Financial Results Since EMFPL had built up infrastructure to handle high volume of operations, the growth during the year resulted in better utilization of staff and other resources leading to lower operating cost. EMFPL posted a net profit after tax of Rs crore for the year ending 31 st March 2015 compared to Rs crore for the previous year. The Return on Average Equity (RoAE) was 19.82%. Capital Adequacy As at the end of year, the Capital to Risk Adjusted Assets (CRAR) was comfortable at 21.15% against the regulatory requirement of 15%. The capital adequacy ratio considers both on book and off-book exposures as per the new regulatory requirement. 25 Equitas Holdings Private Limited

31 Resources and Treasury The funding for the business is from an optimum mix of equity and debt. EMFPL continues to follow the policy of diversification of funding sources. EMFPL has existing relationship with about thirty two lenders across Banks, Financial Institutions and NBFCs, who have sanctioned limits of Rs.1,255 crore during the year, out of which Rs.1,185 crore has been availed as on 31 st March It includes Rs.95 crore of NCDs and Rs.30 crore of Subordinated Debt issued during the year. Undrawn lines as at the year-end include Rs.70 crore. As per EMFPL s securitization and assignment policy, wherein the off-book assets is capped at 35% of the total assets, EMFPL during the year completed around Rs.575 crore of fund raising through securitization transactions with various banks. The overall off-book assets was at 24% to total assets as on 31 st March, The borrowing mix of EMFPL as on 31 st March 2015 is given below: During the year, EMFPL s credit ratings were upgraded by CARE and CRISIL. While CARE has upgraded the credit rating of EMFPL from CARE A- to CARE A, CRISIL has upgraded the credit rating from CRISIL BBB+/Stable to CRISIL A-/Stable. Further, during the year, CRISIL has retained the MFI Grading of EMFPL at the highest level of mfr1. 26 Equitas Holdings Private Limited

32 Support Process and Information Technology EMFPL operates on a centralized transaction processing model supported by Temenos Core Banking System. During the year the focus on technology continued with further enhancement in automation of transactions at branch level to further improve efficiency and control. Various process improvements have enabled EMFPL to establish and maintain an efficient business model. EMFPL expects this to play a crucial role in the prevailing scenario where the microfinance companies have to maintain tight control over costs to stay profitable. Human Resources EMFPL has provided a wide range of benefits to its employees including health insurance for all employees and their dependents. The employees of EMFPL are eligible for stock options under the ESOP Scheme of the Holding Company. In recognition of its employee-friendly HR practices, EMFPL was ranked among the top 100 Great Places to Work in India by The Great Place to Work Institute India Inc. The number of employees as at the end of the year was Social Initiatives Equitas has continued to demonstrate commitment to its wide range of social initiatives. Its medical camps and skill-development training has covered nearly lakh members cumulatively. Under the aegis of Equitas Development Initiatives Trust, six schools are being run, principally for children from the lower economic segments. These schools work towards providing high quality English medium education to these children at a very affordable fee structure. During the year, EMFPL has added the sixth school at Karur and received overwhelming response from the area. Risk Management EMFPL has a Board approved risk management policy and the Board periodically reviews the risks faced by it and the practices followed to manage them. Regulatory uncertainty has been a dominant risk faced by the microfinance sector. This risk has come down considerably during the last couple of years following RBI s regulations for NBFC-MFIs. As an NBFC, EMFPL is exposed to credit risk, liquidity risk, interest rate risk and operating risks. EMFPL has invested in people, processes and technology to effectively mitigate these risks. 27 Equitas Holdings Private Limited

33 Credit Risk Risk of non-repayment of loans by customers is one of the primary risks faced by EMFPL. The joint liability framework provides the basic risk mitigation where the other members in the group take active role in credit screening and monitoring credit behavior of other customers apart from providing credit guarantee. Non-payment may be triggered by either excessive borrowing by clients due to multiple MFIs offering loans as also borrowing from other sources, due to health related issues and due to natural calamities such as floods etc. MFI s without sound operational risk management process and not following prudent lending practices can cause problems. EMFPL considers all other borrowings of clients, need for funds for productive purposes and the bonding with the rest of the group members, before extending loan which is further reinforced through group guarantees. In addition, with the full rollout of the credit bureau initiative, over-borrowing has been effectively curtailed. Against the regulatory requirement of all NBFC-MFIs being required to provide their database to the Credit Bureaus once a month, all members of MFIN provide data on a weekly basis to the Bureaus. This helps to ensure that the data with the Bureaus are as current as possible, preventing multiple borrowings slipping through the gaps. Towards this purpose, EMFPL has been an active participant at industry level initiatives, as part of MFIN (Micro Finance Institutions Network). EMFPL has also adopted the MFIN Code of Conduct promoting responsible lending by MFIs. Operational Risk Risk due to inadequate or failed internal processes, people or systems could cause loss to EMFPL. Micro finance, given its small ticket size is transaction-intensive. These transactions are handled by a large number of employees spread over 361 branches in 124 districts in six states and one union territory. Further, both disbursement and collections from members are done by way of cash, increasing the operational risk. Under the circumstances, it becomes critical to have sound risk management practices. EMFPL has put in multi-layered checks and controls over key client interface processes. While it would be impossible to prevent staff from committing frauds, the approach of EMFPL is to put in place robust controls to shorten the gap to the minimum between an employee s wrong action and its detection. Each field level process conducted by the staff is scrutinized through multiple levels of risk oversight, creating what we call as the Equitas Chakravyuh. Further, EMFPL also constantly upgrades its control processes based on analysis of failed processes. EMFPL s robust controls are well reflected in almost negligible instances of breach of control. The control parameters of EMFPL are generally held as 28 Equitas Holdings Private Limited

34 benchmarks in the MFI sector globally and EMFPL continues to fine-tune the same based on experience. During the year, EMFPL commenced disbursements by electronic funds transfer as an option to customers by encouraging customers to open bank accounts. Twenty three percent of the borrowers have availed the disbursement through bank transfer in place of cash. EMFPL has also identified a few critical processes and has put in a rigorous FMEA (Failure Mode Effect Analysis) process to ring-fence potential process failures and limit damages. The FMEA process was introduced six years ago and is an annual exercise to identify various operational risks and categorise them based on the Risk Priority Number (RPN) score. The RPN number can be 0 for a process where there is absolutely no risk to EMFPL on one end and 1000 where the potential risk is of the highest order. EMFPL has identified all processes with RPN of 100 and more as areas of immediate focus. EMFPL then takes pro-active measures to mitigate and manage these risks and the RPN numbers are measured at the end of each year to see whether the number has fallen below 100. As EMFPL diversifies and expands, new risks come up which are also put through similar rigorous process. During the year, EMFPL has upgraded to a comprehensive Disaster Recovery System. Mirror servers are placed in different seismic zones and there is real time duplication of data between the main server and the stand-by server. This would enable EMFPL to continue its operations without any hindrance in the event of a disaster. This is monitored on a continuous basis by the Audit and Risk Management Committee. Further surprise stress tests are conducted to assess readiness of EMFPL to handle crisis. Market Risk Liquidity Risk: Given the sensitive nature of the sector, the banks funding is closely linked to the overall image of the sector as well as the regulatory environment. Any change in these factors could affect the overall liquidity position of EMFPL. Also, excess liquidity carry leads to negative carry on the surplus cash as the yield on short term investment is always lower than borrowing cost. EMFPL has internal guidelines on the quantum of excess liquidity which is a balance between the need for liquidity and reducing the cost of negative carry on excess liquidity. ALM Risk: EMFPL ensures matched funding without any adverse mis-match in structural liquidity. The interest rate sensitivity arises as EMFPL has high (about 60%) percentage of its borrowings under floating rate whereas the entire lending is on a fixed rate. EMFPL tries to use off-book transactions like securitization/bilateral assignments as a means of locking in interest rates. 29 Equitas Holdings Private Limited