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Bharat Financial Inclusion Ltd. is not traded on BSE in the last 5 days

DIRECTORS' REPORT

Dear Members,

Your Board of Directors (the "Board") takes pleasure in presenting the Twelfth Annual Report of SKS Microfinance Limited (the "Company") together with the audited financial statements for the year ended March 31, 2015.

RESOURCE MOBILIZATION

During the year under review, the Company has diversified its sources of funds and raised a sum of Rs. 5,019.9 crore by way of short–term and long–term loans, commercial papers as also non–convertible debentures ("NCDs"), which was 43.3% higher as compared to Rs. 3,503.1 crore raised during FY14 and 21.9% higher as compared to Rs. 2,874.7 crore during FY13.

The Company has successfully completed fund raising through a Qualified Institutional Placement ("QIP") by way of issue of 17,670,534 equity shares in May 2014, resulting in a capital infusion of Rs. 397.6 crore. The QIP was oversubscribed multiple times. The net worth of the Company as on March 31, 2015 was Rs. 1,046.5 crore and capital adequacy as on March 31, 2015 was 31.7%, well in excess of the mandated 15%. This has enhanced the credit quality of the Company's debt instruments and helped it in obtaining competitive pricing. In addition to the aforesaid QIP the Company also issued 408,997 equity shares consequent to the exercise of stock options by the employees under the Company's various employee stock option plans.

The Company's cost of borrowings reduced to 12.8% in FY15 as compared to 13.6% for FY14. This reduction was mainly driven by a sustained turnaround, capital raise, rating upgrade and diversification of sources of funding. Therefore, 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 Company reduced the rate of interest by 1% in October 2014 and again by 1.55% in July 2015.

With the aforesaid reduction, the rate of interest charged by the Company is the lowest rate among Non–Banking Financial Company –Micro Finance Institutions ("NBFC–MFIs") on its core Income Generating Loans ("IGL").

In addition to the listing of equity shares, the NCDs issued by the Company are listed on the wholesale debt segment of BSE Limited.

BUSINESS OVERVIEW

During FY15, the Company's total revenue and PAT were Rs. 803.1 crore and Rs. 187.7 crore respectively. As of March 31, 2015, the Company had 64 lakh Members (44.8 lakh Members in states other than Andhra Pradesh and Telangana), including 53.3 lakh Borrowers (36.5 lakh Borrowers in states other than Andhra Pradesh and Telangana) spread across 1,268 branches (1,135 branches in states other than Andhra Pradesh and Telangana) in India, with a gross loan portfolio of Rs. 4,184.5 crore (Rs. 4,171.2 crore in states other than Andhra Pradesh and Telangana).

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

SMALL FINANCE BANKING LICENCE

On November 27, 2014, the Reserve Bank of India ("RBI") issued final guidelines for licensing of Small Finance Banks in the private sector to promote financial inclusion through high technology–low cost operations.

The Company has submitted an application to the RBI for the grant of a licence to set up/ operate as a Small Finance Bank.

DIVIDEND

In order to conserve resources and according to the provisions of the Companies Act, 2013 ("CA 2013"), 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

The Board, based on the recommendation of the Nomination and Remuneration Committee ("NRC"), appointed Dr. Punita Kumar–Sinha as an Additional and Independent Director of the Company with effect from March 23, 2015.

A proposal to appoint Dr. Kumar–Sinha as an Independent Director of the Company for a period of five (5) years with effect from March 23, 2015, is being included in the notice of the Twelfth Annual General Meeting (AGM) to seek your approval.

Directors Retiring by Rotation

In terms of Section 152 of the CA 2013, Mr. Paresh Patel is due to retire by rotation at the ensuing AGM and, being eligible, has offered himself for re–appointment.

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 Clause 49 of the Equity Listing Agreement.

Key Managerial Personnel

Mr. M. R. Rao, Managing Director and CEO; Mr. S. Dilli Raj, President; 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.

Effective May 2, 2014, the Board has appointed Mr. Rajendra Patil as the Company Secretary and designated Mr. Sudershan Pallap as the Deputy Company Secretary, who was earlier associated with the Company as its Company Secretary. Other KMP, as mentioned above, were already in office prior to the year under review.

None of the KMP has resigned during the year under review.

DIRECTORS' RESPONSIBILITY STATEMENT

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

1. in the preparation of the accounts for the year ended March 31, 2015, 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, 2015 and of the profit of the Company for the year under review;

3. the Directors took 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 prepared annual accounts of the Company on a 'going concern' basis;

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

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

POLICY FOR SELECTION AND APPOINTMENT OF DIRECTORS AND REMUNERATION POLICY

In compliance with the provisions of the CA 2013 and the revised Clause 49 of the Equity Listing Agreement, the Board has, on the recommendation of the 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 a 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 and Board diversity. In additon, the policy also contains principles relating to remuneration payable to Directors.

AUDITORS

(a) Statutory Auditors

At the Eleventh AGM held on September 29, 2014, the Members approved the appointment of M/s. S. R. Batliboi & Co. LLP Chartered Accountants as statutory auditors for a period of three (3) years commencing from the Eleventh AGM till the conclusion of the Fourteenth AGM subject to ratification by Members every year. As recommended by the Audit Committee, the appointment of M/s. S. R. Batliboi & Co. LLP, Chartered Accountants as statutory auditors of the Company until the conclusion of the Thirteenth AGM is placed for ratification at the ensuing AGM.

Response of the Board to the Auditors' Comments

The Report of the statutory auditor of the Company, dated May 4, 2015 for the audit conducted by them for FY15 is being circulated to Members along with the financial statements. There are no qualifications/ reservations in the said report, except the comments in respect of which the Board would like to place on record its explanation against each of the comments, as detailed in Annexure – I to the Directors' Report.

(b) Secretarial Auditors and Secretarial Audit Report

Pursuant to Section 204 of the CA 2013, the Company had appointed M/s. BS & Company, Company Secretaries LLP as its secretarial auditors to conduct the secretarial audit of the Company for FY15. The Report of secretarial auditor for FY15 is annexed herewith as Annexure – II to the Directors' Report. There are no qualifications, reservations or adverse remarks made by the secretarial auditors in their report.

PARTICULARS OF LOANS OR GUARANTEES OR INVESTMENTS

Pursuant to the clarification dated February 13, 2015 issued by the Ministry of Corporate Affairs, provisions of Sections 186(11) and 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 Clause 49 of the Equity Listing Agreement 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 FY15 are disclosed in Note 28 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>. sksindia.com/downloads/SKS–Related%20Party%20Transaction%20Policy–Version%201–October%2029%202014.pdf

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 occurred between the end of the financial year of the Company i.e. March 31, 2015 and the date of the Directors' Report.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

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 were Nil and Rs. 1.96 crore respectively.

RISK MANAGEMENT POLICY

The Board 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").

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

In light of the CSR Policy, the Company has been pursuing two (2) CSR Projects, viz., Jagruti Se Unnati' and 'Drishti' in the states of Jharkhand, Maharashtra and Odisha.

Jagruti Se Unnati is an awareness programme through which the Company has tried to build awareness about various Central and State Government benefit schemes, amongst people in the villages of Maharashtra.

Drishti is a programme through which the Company has sponsored HelpAge India to organize eye camps to identify cataract affected people and conduct free cataract surgeries in the states of Jharkhand and Odisha.

The disclosure of the contents of the CSR policy pursuant to Section 134(3)(o) of CA 2013 and Rule 9 of the Companies (Corporate Social Responsibility) Rules, 2014, is annexed herewith as Annexure – III 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, 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 THE 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 the defined timelines. During FY15, the Company received three (3) complaints, and the same have been resolved. None of the cases was pending for more than 90 days, and the Company conducted 22 workshops/ awareness programmes 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 – IV to the Directors' Report.

The statement containing particulars of employees as required under Section 197(12) of the CA 2013 read with 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 elsewhere 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 is provided elsewhere in this Annual Report.

EMPLOYEE STOCK OPTION PLAN AND EMPLOYEE SHARE PURCHASE SCHEME

Stock options have been granted or shares have been issued under the following plans/ schemes:

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 Employee Share Purchase Schemes ("ESPS") and Employee Stock Option Plans ("ESOP"), as required by the guidelines/ regulations issued by the Securities and Exchange Board of India, have been annexed as Annexure – V to the Directors' Report.

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, 2015 in form MGT 9 has been annexed as Annexure – VI 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 endeavour 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/– P H. Ravikumar Non–Executive Chairman DIN: 00280010

Sd/– M. R. Rao Managing Director and CEO DIN: 03276291

August 18, 2015

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