FUTURE BHARAT FINANCIAL Directors Report

Dear Members,


The Board of Directors (the “Board”) takes pleasure in presenting the Fourteenth Annual Report of Bharat Financial Inclusion Limited (formerly known as “SKS Microfinance Limited”) (the “Company”) together with the audited financial statements for the year ended March 31, 2017.


FINANCIAL AND OPERATIONAL HIGHLIGHTS


The financial performance of the Company is summarized below:












































































Q1FY17



Q2 FY17



Q3 FY17



Q4 FY17



FY 2017



FY 2016



Change (%)



Total revenue (Rs. in crore)



414.1



449.6



454.9



409.3



1727.9



1320.7



30.8



Less: Total expenditure (Rs. in crore)



275.1



303.7



312.1



644.2



1535.1



926.8



65.6



Profit Before Tax (Rs. in crore)



139.1



145.9



142.8



(234.9)



192.8



393.9



-51



Profit After Tax (Rs. in crore)



235.9



145.9



142.8



(234.9)



289.7



303.0



-4.4



Earnings Per Share (EPS) (Rs.)



18.52



11.41



10.36



(17.03)



21.8



23.9



-8.7



Diluted EPS (Rs.)



18.29



11.26



10.26



(17.03)



21.6



23.6



-8.6



The operational highlights of the Company are summarized below:
















































Year ended March 31



2017



2016



Change (%)



Number of branches



1,399



1,324



5.7



Number of members (in lakh)*



67.0



69.7



(3.9)



Number of employees



14,775



11,991



23.1



Amount disbursed (Rs. in crore)



14,666.9



12,087.8



21.3



Gross loan portfolio (Rs. in crore)



9,149.6



7,688.0



19.0



Gross loan portfolio* (Rs. in crore)



9,149.6



7,676.9



19.2



*outside Andhra Pradesh and Telangana


The Government of India demonetized Rs.500 and Rs.1000 bank notes effective November 9, 2016. This step was taken with a view to curb financing of terrorism through the proceeds of Fake Indian Currency Notes (FICN) and the use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India and to eliminate menace of black money. However, this has severely affected the growth and collection of all MFIs (including the Company).


As per the Company’s provisioning policy for portfolio loans, the Company was constrained to make NPA provision of Rs.308.40 crore crore (in addition to the standard provision of Rs.71.8 crore) and consequently the Company had posted a loss of Rs.234.9 crore for the fourth quarter of FY17. As a consequence of this, though the Company posted a profit after tax (‘PAT’) of Rs.381.8 for the half year ended September 30, 2016, the PAT of the Company for the financial year has reduced to Rs.289.7 as compared to a PAT of Rs.303.0 crore for FY16.


CAPITAL INFUSION


During the year under review, the Company successfully completed its fund raising through Qualified Institutional Placement (‘QIP’) of equity shares in the month of September 2016 resulting in a capital infusion of Rs.749.99 crore. The Company has issued 97,40,259 equity shares at price of Rs.770 per share. The QIP was oversubscribed multiple times.


RESOURCE MOBILISATION


During the year under review, the Company continue to diversify the sources of funds and raised a sum of Rs.6,900.2 crore by way of short-term, long-term loans and commercial papers, which was 5.7% lower as compared to Rs.7,317.4 crore raised during FY16 but 45.8% higher as compared to Rs.5,019.9 crore during FY15.


The net worth of the Company as on March 31, 2017 was Rs.2,446.7 crore and capital adequacy as on March 31, 2017 was 33.5%, well in excess of the mandated 15%.


The Company’s cost of borrowings reduced to 10.6% in FY17 as compared to 11.6% for FY16. This reduction was mainly driven by sustained turnaround and diversification of sources of funding. In line with the Company’s policy of passing on the cost advantages accruing from economies of scale, operational efficiency and reduction in the cost of borrowing to its borrowers, the rate of interest charged by the Company is the lowest rate among the private sector Non-Banking Financial Company -Micro Finance Institutions (‘NBFC-MFIs’) on its core Income Generating Loans (‘IGL’).


BUSINESS OVERVIEW


As of March 31, 2017, the Company had 67.0 lakh Members including 53.2 lakh Borrowers spread across 1,266 branches (All branches in states other than Andhra Pradesh and Telangana) in India, with a gross loan portfolio of Rs.9,149.6 crore as compared to Rs.7,676.9 crore in FY16.


Please refer Management Discussion and Analysis Report for more information on the Company’s Business Overview.


DIVIDEND


In order to conserve resources the Directors have not recommended any dividend for the year under review.


DIRECTORS AND KEY MANAGERIAL PERSONNEL Changes in the composition of the Board of Directors


During the year under review, Mr. Sumir Chadha and Mr. Paresh D. Patel ceased to be Directors of the Company effective from May 4, 2016 and July 21, 2016 respectively.


The Board wishes to place on record its appreciation for the valuable contribution of Mr. Sumir Chadha and Mr. Paresh D. Patel in the sustained growth of the Company during their tenure as Directors of the Company.


The Board, based on the recommendation of the Nomination and Remuneration Committee, appointed Mr. Ashish Lakhanpal as an Additional Director of the Company with effect from May 24, 2017.


A proposal to appoint Mr. Ashish Lakhanpal as a Director liable to retire by rotation, is being included in the Notice of the ensuing AGM to seek your approval.


Directors Retiring by Rotation


To comply with the provisions of Section 152 of the Companies Act, 2013 (‘CA 2013’) Mr. M.R. Rao, Managing Director & CEO shall retire by rotation at the ensuing AGM, being eligible, offered for reappointment.


Declaration of Independence


The Company has received declarations from all Independent Directors of the Company confirming that they meet the criteria of independence as prescribed under Section 149(6) of the CA 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR Regulations”).


Key Managerial Personnel


As on date Mr. M.R. Rao, Managing Director & CEO, Mr. K. V Rao, Chief Operating Officer, Mr. Ashish Damani, Chief Financial Officer and Mr. Rajendra Patil, Company Secretary of the Company are the Key Managerial Personnel (“KMP”) of the Company. During the year under review, Mr. S. Dilli Raj, President, has resigned from the services of the Company on September 21, 2016 and was relieved from the services of the Company effective October 28, 2016


Details of Subsidiary, Associate and Joint Venture oF the Company:


The Company doesn’t have any subsidiary, associate and joint venture.


DIRECTORS’ RESPONSIBILITY STATEMENT


Pursuant to the requirement under Section 134(3)(c) of the CA 2013 with respect to Directors’ Responsibility Statement, it is hereby confirmed that:


1. in the preparation of the accounts for the year ended March 31, 2017, the applicable accounting standards have been followed and there are no material departures from the same;


2. the Directors had selected such accounting policies and applied them consistently, and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2017 and of the profit of the Company for the year under review;


3. the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the CA 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;


4. the Directors had prepared annual accounts of the Company on a ‘going concern’ basis;


5. the Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and


6. the Directors had devised proper systems to ensure compliance with the provision of all applicable laws and that such systems were adequate and operating effectively.


POLICY FOR SELECTION AND APPOINTMENT OF DIRECTORS AND REMUNERATION POLICY


Policy for Selection and Appointment of Directors


In compliance with the provisions of the CA 2013 and SEBI LODR Regulations, the Board, on the recommendation of the Nomination and Remuneration Committee (“NRC”), approved the Policy for Selection and Appointment of Directors.


The aforesaid Policy provides a framework to ensure that suitable and efficient succession plans are in place for appointment of Directors on the Board so as to maintain an appropriate balance of skills and experience within the Board. The Policy also provides for selection criteria for appointment of directors, viz. educational and professional background, general understanding of the Company’s business dynamics, global business and social perspective, personal achievements, Board diversity and payment of remuneration to the directors of the Company.


NUMBER OF MEETINGS OF THE BOARD OF DIRECTORS


The details of the meetings of the Board of Directors of the Company held during the year are mentioned in the Corporate Governance Report which is provided separately in this Annual Report.


AUDITORS


(a) Statutory Auditors


The existing Statutory Auditors, S. R. Batliboi & Co. LLP, Chartered Accountants, were appointed at the Eleventh Annual General Meeting for a period of three years until the conclusion of the Fourteenth Annual General Meeting.


In view of the mandatory requirement for rotation of auditors upon completion of 10 years of association with a company, in terms of Section 139 of the CA 2013, S. R. Batliboi & Co. LLP, Chartered Accountants, will retire as the Company’s Auditors at the conclusion of the ensuing Fourteenth Annual General Meeting. It is proposed to appoint BSR & Associates LLP, Chartered Accountants (FRN : 116231W / W-100024) as the new Statutory Auditors of the Company. BSR & Associates LLP, Chartered Accountants are proposed to be appointed for a period of five continuous years i.e. from the conclusion of Fourteenth Annual General Meeting till the conclusion of Nineteenth Annual General Meeting of the Company.


BSR & Associates LLP, Chartered Accountants have informed the Company that their appointment, if made, would be within the limits prescribed under Section 141 of the CA 2013 and have also confirmed that they have subjected themselves to the peer review process of the Institute of Chartered Accountants of India (‘ICAI’) and hold valid certificates issued by the Peer Review Board of the ICAI. BSR & Associates LLP have also furnished a declaration in terms of Section 141 of the CA 2013 that they are eligible to be appointed as auditors and that they have not incurred any disqualification under the CA 2013.


The Board recommends appointment of BSR & Associates LLP, Chartered Accountants as Statutory Auditors of the Company from the conclusion of Fourteenth Annual General Meeting up to the conclusion of Nineteenth Annual General Meeting of the Company, subject to ratification at every Annual General Meeting.


The Board of Directors places on record its appreciation for the services rendered by S. R. Batliboi & Co. LLP, Chartered Accountants as the Statutory Auditors of the Company.


Members’ attention is drawn to a Resolution proposing the appointment of BSR & Associates LLP, Chartered Accountants as the new Statutory Auditors of the Company which is included in the Notice convening the Fourteenth Annual General Meeting.


(b) Secretarial Auditor and Secretarial Audit Report


Pursuant to Section 204 of the CA 2013, the Company had appointed BS & Company, Company Secretaries LLP, as its Secretarial Auditors to conduct the secretarial audit of the Company for FY17. The Report of secretarial auditor for FY17 is annexed herewith as Annexure - I to Directors’ Report.


There are no qualifications, reservation or adverse remark made by the Statutory Auditor and Secretarial Auditor in their reports, save and except disclaimer made by them in discharge of their professional obligation.


DETAILS OF FRAUDS REPORTED BY THE STATUTORY AUDITORS


During the year under review, the Statutory Auditors of the Company have not reported any fraud as required under Section 143(12) of the CA 2013.


PARTICULARS OF LOANS OR GUARANTEES OR INVESTMENTS


Pursuant to the clarification dated February 13, 2015 issued by the Ministry of Corporate Affairs and Section 186(11) of the CA 2013, the provision of Section 134 (3)(g) of the CA 2013 requiring disclosure of particulars of the loans given, investments made or guarantees given or securities provided is not applicable to the Company.


RELATED PARTY TRANSACTIONS


All transactions entered into with Related Parties as defined under the CA 2013 and SEBI LODR Regulations during the year under review were in the ordinary course of business and at an arm’s length pricing basis and do not attract the provisions of Section 188 of the CA 2013. The details of the transactions with related parties, if any, are placed before the Audit Committee from time to time.


Details of the related party transactions, which are exempted according to a proviso to Section 188 of the CA 2013, during FY17 are disclosed in Note 27 of the financial statements.


The policy on Related Party Transactions, as approved by the Board, is displayed on the website of the Company at http://www.bfil.co.in/wp-content/themes/sks/public/downloads/SKS-Related%20Party%20 Transaction%20Policy-Version%201-October%2029%202014.pdf


TRANSFER TO RESERVES


During the year the Company has transferred an amount of Rs.57.94 crore to Statutory Reserve as required (20% of Profit after tax) under Section 45-IC of RBI Act, 1934.


MATERIAL CHANGES AND COMMITMENTS, IF ANY, AFFECTING THE FINANCIAL POSITION OF THE COMPANY


There are no material changes and commitments affecting the financial position of the Company, which has occurred between the end of the financial year of the Company i.e. March 31, 2017 and the date of the Directors’ Report.


CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO UNDER SECTION 134(3)(M) OF THE CA 2013


The provisions of Section 134(3) (m) of the CA 2013 relating to conservation of energy and technology absorption do not apply to the Company. The Company has, however, used information technology extensively in its operations.


During the year under review, the Company’s earning and outgo in foreign exchange earning was Nil and Rs.1.9 crore respectively. In connection with the foreign exchange outgo, you are also advised to refer Note 32 of the financial statements.


ANNUAL EVALUATION OF THE BOARD


A statement on formal evaluation of the Board is mentioned in the Corporate Governance Report which is provided separately in this Annual Report.


RISK MANAGEMENT POLICY


The Board of the Company has adopted the Risk Management Policy based on the recommendation of the Risk Management Committee in order to assess, monitor and manage risk throughout the Company.


Risk is an integral part of the Company’s business, and sound risk management is critical to the success of the organization.


Detailed information on risk management is provided in the Management Discussion and Analysis Report.


CORPORATE SOCIAL RESPONSIBILITY (CSR)


In compliance with Section 135 of the CA 2013 read with the Companies (Corporate Social Responsibility Policy) Rules 2014, the Company has established the Corporate Social Responsibility Committee (CSR Committee) in the year 2014 and the composition and function thereof are mentioned in the Corporate Governance Report.


The Board adopted the CSR Policy, formulated and recommended by the CSR Committee, and the same is available on the Company’s website.


During FY17, the Company has pursued four (4) CSR Projects viz. Drishti, Animal Wellness Camps, Sanjeevani and Mental Health awareness programme, details thereof are given in the Report on Corporate Social Responsibility Activities which is annexed herewith as Annexure - II to the Directors’ Report.


DEPOSITS


During the year under review, the Company has not accepted any deposit from the public.


DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANY OPERATIONS IN FUTURE


There are no significant material orders passed by the Regulators, Courts or Tribunals which would impact the going concern status of the Company and its future operations.


INFORMATION REQUIRED UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION & REDRESSAL) ACT, 2013


The Company has a policy against sexual harassment and a formal process for dealing with complaints of harassment or discrimination. The Company seeks to ensure that all such complaints are resolved within defined timelines. During FY17, the Company has received ten complaints, of these seven complaints have been resolved and three complaint were pending as on March 31, 2017. The Company has conducted 20 workshops/ awareness programs on prevention of sexual harassment.


INTERNAL FINANCIAL CONTROLS


The Company has adequate internal controls and processes in place with respect to its operations, which provide reasonable assurance regarding the reliability of the preparation of financial statements and financial reporting as also functioning of other operations. These controls and processes are driven through various policies and procedures.


Detailed information on Internal Financial Controls is provided in the Management Discussion and Analysis Report.


VIGIL MECHANISM


The Company has adopted the Whistle-blower Policy, and details of the same are explained in the Corporate Governance Report. The Policy is also available on the Company’s website.


PARTICULARS OF EMPLOYEES


The ratio of the remuneration of each director to the median employee’s remuneration and other details in terms of Section 197(12) of the CA 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, have been annexed herewith as Annexure - III to the Directors’ Report.


The statement containing particulars of employees as required under Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is provided in a separate annexure forming part of the Directors’ Report. In terms of Section 136 of the CA 2013, the Directors’ Report and the Accounts are being sent to the Members excluding the aforesaid annexure and the same is open for inspection at the Registered Office of the Company. A copy of the statement may be obtained by the Members, by writing to the Company Secretary of the Company.


MANAGEMENT DISCUSSION AND ANALYSIS


The Management Discussion and Analysis Report for the year under review is presented separately in this Annual Report.


CORPORATE GOVERNANCE


The Company has adopted best corporate practices, and is committed to conducting its business in accordance with the applicable laws, rules and regulations. The Company follows the highest standards of business ethics. A report on Corporate Governance (forming part of Directors’ Report) is provided separately in this Annual Report. During the year under review, the Company was assigned a Corporate Governance Rating of CGR2 by ICRA Limited which implies that in ICRA’s opinion, the company has adopted and follows such practices, conventions and codes as would provide its financial stakeholders a high level of assurance on the quality of corporate governance. The Compliance Certificate from BS & Company, Company Secretaries LLP regarding compliance of conditions of corporate governance under the SEBI LODR Regulations is annexed to the Corporate Governance Report.


BUSINESS RESPONSIBILITY REPORT


The Business Responsibility Report for the year under review has been annexed as Annexure - IV to the Directors’ Report.


EMPLOYEE STOCK OPTION PLAN (ESOP) AND EMPLOYEE SHARE PURCHASE SCHEME (ESPS)


Presently, stock options have been granted or shares have been issued under the following scheme/ plans


A. SKS Microfinance Employee Share Purchase Scheme 2007 (“ESPS 2007”)


B. SKS Microfinance Employee Stock Option Plan 2008 (Independent Directors) (“ESOP 2008 (ID)”)


C. SKS Microfinance Employee Stock Option Plan 2008 (“ESOP 2008”)


D. SKS Microfinance Employee Stock Option Plan 2009 (“ESOP 2009”)


E. SKS Microfinance Employee Stock Option Plan 2010 (“ESOP 2010”)


F. SKS Microfinance Employee Stock Option Plan 2011 (“ESOP 2011”)


The disclosures with respect to each of the above-mentioned scheme/plans, as required by the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, is displayed at Company’s website http://www.bfil.co.in/.


EXTRACT OF ANNUAL RETURN


Pursuant to Section 134 (3)(a) and Section 92 (3) of the CA 2013, read with Rule 12 of the Companies (Management and Administration) Rules, 2014, an extract of the Annual Return as at March 31, 2017 in form MGT 9 has been annexed as Annexure - V to the Directors’ Report.


ACKNOWLEDGEMENTS


Your Directors take this opportunity to express their deep and sincere gratitude to the Sangam Members for their confidence and patronage, as well as to the Reserve Bank of India, the Government of India and Regulatory Authorities for their cooperation, support and guidance. Your Directors would like to express a profound sense of appreciation for the commitment shown by the employees in supporting the Company in its endeavor of becoming one of the leading microfinance institutions of the country. Your Directors would also like to express their gratitude to the members, bankers and other stakeholders for their trust and support.


For and on behalf of the Board of Directors


Sd/- Sd/-


P.H. Ravikumar M.R. Rao


Non-Executive Chairman Managing Director & CEO


Date: June 8, 2017 DIN No.: 00280010 DIN No.: 03276291

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