KKR INDIA FINANCIAL SERVICES PRIVATE LIMITED CORPORATE GOVERNANCE POLICY Page 1 of 12
Summary of Policy Policy Name Policy Type Related policies and regulations Corporate Governance Policy B Board B Board M Management D Department Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 Issue date June 2010 Effective date June 2010 Review cycle AN OT AN Annually QT Quarterly MO Monthly OT Other, i.e. upon regulatory change, new products/business, etc. Date of last review September 2016 Date of next review August 2017 Owner / Contact KKR India Financial Services Private Limited Approver Board of Directors of KKR India Financial Services Pvt.Ltd. Annexures None Appendices Appendix A - Proforma Information in respect of loans and advances sanctioned to the Directors of KIFSPL, their relatives and other entities Appendix B - Policy Review History. Page 2 of 12
PREAMBLE Sound governance practices and responsible corporate behaviour contribute to superior long-term performance of companies. A best practice on governance issues is an evolutionary and continuing process. Corporate governance practice embodies the dual goals of protecting the interests of all stakeholders while respecting the duty of the board and senior management to oversee the affairs of a company, ensure accountability, inculcate integrity and promote long-term growth and profitability. The spirit of good corporate governance cannot be codified but is rather a state of mind that translates into actual practice. KKR India Financial Services Private Limited ( KIFSPL or the Company ), has framed the following Internal Guidelines on Corporate Governance with the intent of following corporate governance in spirit as also letter of law. 1. BACKGROUND Reserve Bank of India ( RBI ) has issued guidelines on Corporate Governance to non deposit taking NBFC s in order to enable the adoption of best practices and greater transparency in their operations. In view of the RBI guidelines, the Company has set out the following set of guidelines / corporate governance practices to create value for stakeholders such as the shareholders, employees, customers etc. The affairs of the Company shall be conducted with integrity, fairness, accountability and transparency. All commitments in its dealings with stakeholders and regulatory authorities shall be met as set forth below. Important Declarations Each member of the Board of Directors of KKR India Financial Services Private Limited and Core Management shall adhere to the following so as to support the existence of a good Corporate Governance environment: (i) shall attend Board meetings regularly and participate in the deliberations and discussions effectively. (ii) shall study the Board papers and enquire the progress of any matter raised in previous meetings. (iii) shall review and approve key policies of KIFSPL. (iv) shall ensure confidentiality of the KIFSPL s agenda papers, notes and Minutes. (v) Shall not sponsor any proposal relating to loans, investments, buildings or sites for KIFSPL s premises, enlistment or empanelment of contractors, architects, auditors, doctors, lawyers and other professionals etc. (vi) shall ensure that employees are given adequate autonomy within a well defined and controlled operational framework to discharge their responsibilities and perform their duties in a disciplined manner with utmost integrity and through good conduct. Page 3 of 12
(vii) INTERNAL GUIDELINES ON CORPORATE GOVERNANCE a) Composition of Board of Directors: The Board of Directors of KIFSPL shall have 3 Directors. b) Constitution of various Committees with frequency of meetings With the objective of attaining accountability, transparency and fairness, the following Committees are specifically constituted by the Board of Directors for the below mentioned purposes to act in accordance with terms of reference specified by the Board of Directors: Committees Functions Members Require ments Periodicity of Meetings Date of Formatio n Audit Committee To ensure that an Information System Audit of the internal systems and processes is conducted at least once in two years to assess operational risks. Minimum three directors and such number of other directors as the Board may determine. Mandator y Twice a year 17 February, 2011 To act upon the following - the recommendation for appointment, remuneration and terms of appointment the of auditors of the company; review and monitor the auditor s independence and performance, and effectiveness of audit process; examination of the financial statement and the auditors report thereon; approval or any subsequent modification of transactions of the company with related parties; scrutiny of inter-corporate loans and investments; valuation of undertakings or assets of the company, wherever it is necessary; evaluation of internal financial controls and risk management systems; monitoring the end use of funds raised through public offers and related matters. Page 4 of 12
Committees Functions Members Requir ements Periodicity of Meetings Date of Formatio n Asset Liability Management Committee (ALCO) & Risk Management Committee (i) Attend to aspects relating to Asset Liability Management; (ii) Ensuring adherence to the Risk Management Polices approved by the Board / Committees of the Board; (iii) Drafting of Risk Management Policies on risks associated with the Company s business for approval of the Board; ALCO to comprise any 2 of the following: i. Any 1 Director ii. CFO and Compliance Head Mandat ory Twice a year as KIFSPL does not intend to have external liabilities and will be largely capital funded. 7 March, 2011 (iv) Monitor the asset liability gap and strategize action to mitigate the risk associated. Local Investment Committee The Committee has been constituted to: (i) Review the Equity Portfolio, Corporate Bonds and Mutual Fund; (ii) Investment in IPOs /FPOs and decide on appropriate trading strategies relating to the investments; (iii) The bidding at the auction / issue of government securities (G-Sec.) and Treasury Bills (T-Bills). Local Investment Committee to comprise any 2 of the following: (i) Any 1 Direct or and (ii) CFO and Compliance Head Non Mandat ory The Local Investment Committee will meet 1 Twice a year and 2 As and when an investment opportunity is to be discussed. All loan and investmen t related functions are approved by Board of Directors, hence the Investmen t Committe e is not being constitute d Nomination Committee The Committee has been constituted to: formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Nomination Committee to comprise any 2 of the following: (i) Any 1 Direct or and (ii) CFO Mandat ory As and when any director is to be appointed 7 March, 2011 Page 5 of 12
Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees To ensure that the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully; To ensure that the relationship of remuneration to performance is clear and meets appropriate performance benchmarks; To ensure remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals and Compl iance Head The quorum for all the above said meetings shall be 2 members. c) With regard to the corporate governance overview, the Company shall place before the Board at half yearly intervals, a report on Review of Business, Internal Audit reports, Risk Review Reports of loan and investments. The Statutory Compliance Certificate from the statutory auditors shall also be placed at the meeting following the receipt of the said certificate, which sets out that all the laws applicable to the company have been complied with. d) In addition to the above, KIFSPL shall follow the following guidelines for due compliance: (i) All the employees of KIFSPL are obliged to carry out their duties in an honest, fair, diligent and ethical manner, within the scope of the authority conferred upon them and in accordance with the laws, rules, regulations, agreements, guidelines, standards and internal policies and procedures. The Board of Directors of the Company is entrusted with the fiduciary responsibility of oversight of the affairs of the Company. As Directors of the Company, they have a duty to Page 6 of 12
make decisions and implement policies in the best interest of the Company and its Stakeholders. The Directors and Senior Management personnel are required to act in accordance with the highest standards of personal and professional integrity, honesty, ethical and legal conduct, when acting on behalf of the Company or in connection with the Company's business or operations and at social events. An honest conduct is considered as such when a conduct is free from fraud or deception. KIFSPL considers ethical conduct to be confirming to the accepted professional standards of conduct and include ethical handling of actual or apparent conflicts of interests between personal and professional relationships. The Directors and employees shall: Act honestly, fairly, ethically, with integrity and loyalty and conduct themselves in a professional, courteous and respectful manner; Act in the best interests of the Company and in a manner to enhance and maintain the reputation of the Company, and fulfill their fiduciary duties to the stakeholders of the Company. Act in good faith, with responsibility, due care, competence, diligence and independence. Treat their colleagues and other associates of the Company with dignity. (ii) (iii) (iv) (v) The Directors and Senior Management personnel will avoid and disclose any activity or association that creates or appears to create a conflict between the personal interest and the Company's business interest. A conflict of interest exists where the interest or benefits of one person or entity conflict with the interests or benefits of the Company. Relationships with prospective or existing suppliers, contractors, customers, competitors or regulators must not affect the independent and sound judgment on behalf of the Company. Directors and the Senior Management personnel are required to disclose to the Board any situation that may be, or appear to be, a conflict of interest. Executive Directors and Senior Management personnel shall not work for or receive payments for services from any competitor, customer, distributor or supplier of the Company without approval of the Board. (Further provisions regarding dual employment will be governed by the Employee Handbook of the company) Directors and Senior Management personnel shall not use personal influence to make the Company do business with a company/institution in which his or her relatives are interested. As a general rule, Directors and Senior Management personnel shall avoid conducting Company's business with a relative or with an entity in which a relative is associated in any significant role. In case of conflicts, disclosure shall be made to the Board of Directors and a prior approval shall be obtained. Personnel shall neither accept gifts, services or other items of more than Rs 22,500 per year nor give/or offer any gift of more than de minimis value (Rs 11,500) in accordance with the practices adopted and prescribed globally by KKR. Similar guidelines would be applicable to gratuities or any offer, payment, promise to pay, or authorization to pay any money, or anything of value that could be interpreted to adversely affect business decisions or likely to compromise their personal or professional integrity. Gift items of nominal value, such as small promotional items bearing another company's name, business meals, gifts received because of personal relationships and not because of official position, mementos received because of attending a widely held gatherings as panelist/speaker and other customary gifts may be allowed with prior approval from Compliance. (Gifts are not always physical objects - they might also be services, favors or other items of value). Page 7 of 12
(vi) Directors and Senior Management personnel shall not divert business opportunities of the Company, by exploiting for their own personal gain, business opportunities that are discovered through the use of corporate propriety information or position. However the Directors and Senior Management personnel may pursue such business opportunities provided Compliance has provided approval and once they are fully disclosed to the company and the company declined to pursue such opportunities. (vii) The assets of the Company shall be used for legitimate business purposes and shall not be used for personal purposes. Incidental personal use, if reasonable does not amount to violation of these guidelines. (viii) It is the general obligation of the Directors to conduct the business and operations of the Company in accordance with the laws, rules, regulations, agreements, guidelines, standards including accounting standards governing its operations. The Directors and Senior Management personnel shall also comply with the internal policies and procedures of the Company to the extent applicable to them. (ix) (x) (xi) It is the Company's policy to ensure continuous, timely and adequate disclosure of Company's information. The Company is committed to full, fair, accurate, timely and understandable disclosure in reports and documents; it files with or submits to the regulatory authorities and in other public communications. The Directors and Senior Management personnel shall provide only public information to the analyst/research person/large investors like institutions. The Directors and Senior Management personnel must maintain the confidentiality of information relating to the affairs of the Company until and unless authorized or legally required to disclose such information; and shall not use confidential information for their personal advantage. The Directors and Senior Management personnel are obligated to deal fairly and honestly with each other, the Company's affiliates and with the Company's customers, suppliers, competitors and other third parties. Directors and Senior Management personnel shall not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation or any other unfair dealing or practice. The Company is committed to free and open competition in the marketplace. Directors and Senior Management personnel shall avoid actions that could reasonably be construed as being anti-competitive, monopolistic or otherwise contrary to laws governing competitive practices in the marketplace, including antitrust laws. Such actions include misappropriation and/or misuse of a competitor's confidential information or making false statements about the competitor's business and business practices. It is the duty and obligation of every Director and Senior Management personnel to comply with these internal guidelines on corporate governance. Any violation of these internal guidelines on corporate governance shall be reported to the any member of the Board of the Company. These internal guidelines on corporate governance shall be posted on the website of the Company. (xii) Personal Investments of every employee shall be governed by procedures, practices and policies relating to employee investments adopted globally. e) Maintenance of Independence of the statutory auditors audit firm KIFSPL shall rotate the partner/s of the Chartered Accountant firm conducting the audit, every three years so that same partner does not conduct audit of the company continuously for more than a period of three years. However, the partner so rotated will be eligible for conducting the Page 8 of 12
audit of KIFSPL after an interval of three years, if KIFSPL, so decides. KIFSPL shall incorporate appropriate terms in the letter of appointment of the firm of auditors and ensure its compliance. Page 9 of 12
Appendix A Proforma Information in respect of loans and advances sanctioned to the Directors of KIFSPL, their relatives and other entities mentioned above: Position as on: Sr. No Name of the Customers (relationship) Date of Sanction/ Renewal Limits Sanctioned (Rs. in lakhs) Type of Secured Un- Nature Facility secured and Value of Security Funded Nonfunded Due Date/ Date of Maturity 1 2 3 4 5 6 7 8 9 Secured Unsecured Total (100% of Funded and 50% of Non-funded Limits) Amount Outstanding (Rs. in Lakhs) Whether in excess of exposure norms/limits stipulated by RBI Action initiated in case of Overdue/ NPA Accounts 10 11 12 13 14 Note: Different types of facilities sanctioned to a customer shall be indicated separately against columns 4 and 5. Page 10 of 12
Appendix B Policy Revision History Include a revision history in the following table or you may direct the audience to a repository where this information is stored. The items below this point are for record-keeping purposes. Whether some or all of them are shown in the published document is at the discretion of the applicable Owner. Versio n Effective Date Revision Date Approved By Date Approved Revision History 1.0 XXXXXX XXXXXX 1.1 01/08/2011 01/08/2011 Board of Directors 1.2 01/08/2012 01/08/2012 Board of Directors 1.3 01/08/2013 01/08/2013 Board of Directors 1.4 01/08/2014 01/08/2014 Board of Directors 1.5 11/8/2015 11/8/2015 Board of Directors 1.6 02/09/2016 02/09/2016 Board of Directors Mm/dd/yyyy Board Resolution dated 20/08/2011 Board Resolution dated 20/8/2012 Board Resolution dated 23/08/2013 Board Resolution dated 06/08/2014 Board Resolution dated 03/08/2015 Board Resolution 02/09/2016 Original version First Revision Second Revision Third Revision Fourth Revision Fifth Revision Sixth Revision Page 11 of 12
Addendum KKR Legal/Compliance department has issued an amendment to the gift policy by issuing a Compliance Alert on 12 September, 2011 as enclosed. Accordingly, clause (v) on page 9 is replaced as below: (v) Personnel shall neither accept gifts, services or other items of more than Rs 5,000 per year nor give/or offer any gift of more than de minimis value (Rs 10,000) in accordance with the practices adopted and prescribed globally by KKR. Similar guidelines would be applicable to gratuities or any offer, payment, promise to pay, or authorization to pay any money, or anything of value that could be interpreted to adversely affect business decisions or likely to compromise their personal or professional integrity. Gift items of nominal value, such as small promotional items bearing another company's name, business meals, gifts received because of personal relationships and not because of official position, mementos received because of attending a widely held gatherings as panelist/speaker and other customary gifts may be allowed with prior approval from Compliance. (Gifts are not always physical objects - they might also be services, favors or other items of value). The above amendment is with immediate effect. Enclosure: Compliance Alert Page 12 of 12