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REPORT OF DIRECTORS
To the Members
Your Directors are pleased to present the 29th Annual Report of the business and operations of the Company together with the audited accounts for the year ended March 31, 2016.
2. Business Performance Highlights
The main challenge during the year under review was to increase the revenue with a focus to increase the bottom line. This challenge was particularly pronounced by the economic slowdown, high interest rates, slow realty sector growth and sluggish apartment off–take.
During the year, your Company continued to focus on retail housing and non–housing loan segment which constituted 99% of its total sanctions. Housing and other loans sanctioned amounted to Rs.4,418 Crore (previous year Rs.3,670 Crore), a growth of 20% over the previous year and significantly higher than the industry average. The cumulative loan sanctions since inception of your Company stood at Rs.20,911 Crore at the end of the FY 15–16.
Your Company recorded a growth of 17% in disbursements of housing loans and other loans that was higher than the industry average. The cumulative loan disbursements from inception to the end of the FY 15–16 was Rs.18,291 Crore.
c. Loans outstanding (Loan Book)
The loan(s) outstanding at the end of the financial year 2015–16 was Rs.10,643 Crore (previous year Rs.8,231 Crore), registering a growth of 29%.
Your Company continues to give more thrust to increasing the share of high–yielding non–housing loans in the loan–mix. During the year, the share of non–housing loan has increased from 11.00% (Rs.905.80 Crore) to 11.86% Rs.1,261.81 Crore).
d. Non–Performing Asset (NPA)
In a slowing housing loan market, one of the biggest challenges lay in addressing accretion of nonperforming assets. Your directors are pleased to report that even as the year under review was challenging for the country’s non–banking finance sector, the Gross NPA of your Company as on March 31, 2016 was Rs.19.76 Crore (previous year Rs.14.35 Crore), possibly the lowest in the industry. The net NPA as on the date continued to be Nil, with the NPA Provision Coverage Ratio at 100%. The gross NPA percentage as on March 31, 2016 stood at 0.19% compared to 0.17% as on March 31, 2015.
During the year under review, your Company could make a cash recovery of Rs.3.32 Crore (previous year Rs.1.37 Crore) in respect of accounts which were Non Performing Assets as on March 31, 2015. Recovery in written–off accounts during FY 15–16 was Rs.0.74 Crore (previous year Rs.0.73 Crore).
Your Directors are happy to inform that during the year under review, your Company recorded a Profit Before Tax (PBT) and Provisions of Rs.273.27 Crore (previous year Rs.151.70 Crore) and Profit After Tax (PAT) of Rs.157.11 Crore (previous year Rs.86.24 Crore) registering a Year–on–Year increase of 80% and 82%, respectively. During the year under review your Company has made provisions for standard assets amounting to Rs.14.00 Crore (previous year Rs.12 Crore) and Rs.19.04 Crore (previous year Rs.9.69 Crore) towards the Deferred Tax Liability (DTL) on Special Reserve. While the Year–on–Year (YoY) growth was 80.13% under Profit before Tax and Provisions, the same was 82.17% under PAT with DTL component and 104.25% without considering the DTL component.
Your Company has been paying dividends continuously.
Your directors have considered in detail about the dividend with specific reference to the funds and the Capital Adequacy Requirements (CAR) for the projected business plans for next year, creation of Deferred Tax Liability and expected future business growth of your Company.
Considering the views expressed by the Members of your Company at the previous Annual General Meetings, appreciating the confidence reposed by the members in your Company, the Board of Directors of your Company are happy to recommend a dividend of Rs.10 per equity share (100%) for the financial year ended March 31, 2016 for all the shareholders (against Rs.7 per equity share (70%) recommended during the previous year). The tax on dividends u/s.115–O of the Income Tax Act, 1961, at about 20.36% (previous year 17.30%), is being paid to the Government by your Company.
4. Expansion of Branch Network
During the FY 15–16, 3 new branches were opened by your Company in different States across the country, taking the total number of branches to 110 (previous year 107 branches). Further, your Company introduced the concept of ‘Satellite Offices’ by which many branches in metropolitan/tier–II cities can source business from additional locations (within 30 km radius) apart from providing doorstep service to existing/potential customers with lower operating costs considering the smaller unit size.
Your Company opened 20 new Satellite Offices across the country in FY 15–16 to take the tally of Satellite Offices from 10 to 30 as on March 31, 2016. The total number of branches / satellite offices as on March 31, 2016 stood at 140. With this branch network, your Company will enjoy a strong marketing and distribution capabilities to scale its business and address the growing needs of a larger section of customers. The Registered Office and all the branches are provided with state–of–the art ambiance, spacious premises, and other facilities to enhance service quality and visibility in the market.
For the year FY 16–17, your Company has envisaged opening branches/satellite offices in 35 locations, out of which 27 branches/satellite offices were opened on a single day viz., on April 21, 2016 and another 3 branches in May 2016.
5. Technology Initiatives
All the branches of your Company and the Registered Office are linked through a core–banking platform (Integrated Business Suite) under the Application Service Provider (ASP) Model that enriched data management and strengthened service delivery.
All the new branches were opened on the Core Banking platform from day one. Your Company increased its bandwidth to enhance operational speed across branches through the ASP vendor through an additional connectivity provider (Tata and Reliance). In order to improve operational efficiency, your Company embarked on technology initiatives like the introduction of Online Application Module in the Company’s website to receive applications online, mobile website, customer portal in the website to draw account statements/certificates at customers’ end, missed call facility to borrowers to inform them about outstanding balances in their loan accounts, SMS alerts to remind borrowers of loan installments/new schemes. The Electronic Clearing System (ECS) facility for collection of installments covers almost 69.74% of the new accounts making the recovery process smooth and hassle–free.
Your Company has introduced online money transfer & ‘E–info Book’ as a mobile application, to facilitate its borrowers to view their mini–statement of account(s), product information, branch location and last six entries in their accounts.
6. Customer–Friendly Initiatives
During the year, your Company conducted studies for evaluating the systems/procedures/processes/products of peer group players to examine the best practices and implement/adopt those suitable, to ensure simple and customer–friendly processes. Earnest efforts were made to reduce the turnaround time (TAT) in sanctioning and disbursing loans at all levels.
Your Company continued to adopt transparent, ethical, equitable practices towards all customer segments. Your Company’s website provided all the major information on the products and applicable charges. The Fair Practice Code (FPC) and Most Important Terms and Conditions (MITC) reviewed at half–yearly intervals based on feedback from customers/branches and as per NHB guidelines. Your Company received encouraging response to its unique referral scheme wherein many existing customers benefited from the refunds of their processing fees upon referring new customers to the Company and on getting the same disbursed.
As another customer–friendly initiative, your Company has introduced on–line transfer facility to the borrower for making remittances to their respective loan accounts and an on–line customer feedback facility through which the customers can offer their suggestions, complaints, if any and feedback.
7. Financial Resources
a. Refinance from National Housing Bank (NHB)
During the year, in all, your Company has availed fresh refinance amounting to Rs.630.64 Crore (previous year Rs.1,345.90 Crore) under the NHB refinance scheme to housing finance companies. The cumulative NHB borrowings as on March 31, 2016 were Rs.3,535.05 Crore (previous year Rs.3,220.34 Crore), with the overall cost of borrowing (including the loans under Rural Housing and Urban Housing Schemes) of 8.74% p.a. as on March 31, 2016.
Borrowings from Banks
Your Company progressively reduced its dependence on bank borrowings (31% to 27% of total borrowings on YOY basis). During the year, borrowings were diversified through a combination of short–term and long–term loans considering the asset liability management position to derive the maximum benefit of competitive interest rates. The lenders included HUDCO, State Bank of India, Bank of Baroda, HDFC Bank, Oriental Bank of Commerce and Federal Bank apart from Canara Bank, the principal bankers to the Company. The aggregate bank borrowings (term loans plus overdraft) at the end of the financial year stood at Rs.2,531.65 Crore (previous year Rs.2,307.12 Crore);
The overall borrowings are always within regulatory ceiling (16 times of audited net owned funds).
The overall cost of borrowings was 9.81% p.a. as on March 31, 2016. During the year, the long–term ‘rating’ for term loans for your Company was ‘[ICRA]AAA’ (pronounced ICRA triple A) by ICRA Ltd., these ratings assumed to possess the highest degree of safety with regard to the timely servicing of financial obligations. While reaffirming the ratings by ICRA during February 2016, the outlook on the long–term ratings has been revised from stable to negative.
(i) Secured Non–Convertible Debentures
In its continuing efforts to reduce fund costs, your Company issued Secured Redeemable Non–Convertible Non–Cumulative Taxable Debentures (SRNCD) aggregating Rs.1,540 Crore (previous year Rs.300 Crore) in different tranches through private placement with a coupon rate range of 8.41% to 8.85%. The debentures were secured by way of a floating charge on the assets i.e., loan receivables specifically earmarked for the purpose/mortgage of an immovable property in favour of the Debenture Trustees. Most investors in these debentures comprised major insurance companies, public sector banks, corporates and investors of repute, indicating their safety perception in your Company’s fundamentals and prospects.
The tenure of debentures is range bound to two to three years. The interest on these debentures was serviced as and when it became due. The aggregate borrowings by way of Secured NCDs as on March 31, 2016 was Rs.2,090 Crore (previous year Rs.550 Crore) while the overall cost was 8.94% p.a.
The Debentures issued by your Company were rated by three rating agencies viz., Credit Analysis & Research Ltd. (CARE), India Ratings and Research Pvt. Ltd. (FITCH) and ICRA Ltd.
The debentures were rated ‘[CARE] AAA’ by CARE, ‘IND AAA’ by India Ratings and Research Pvt. Ltd (FITCH), and ‘[ICRA] AAA’ by ICRA Limited. While reaffirming the ratings by ICRA during February 2016, the outlook on the long–term ratings has been revised from stable to negative. These debentures were listed on the Wholesale Debt Market (WDM) segment of the National Stock Exchange of India Limited.
Your Company plans to raise Non–Convertible Debentures up to a maximum Rs.3,000 Crore (last year H2,500 Crore as permitted by AGM) in a year, subject to cost benefit and asset liability management requirements.
(ii) Unsecured Non–Convertible Debentures
During the previous year, your Company had issued 8.94% Unsecured Non–Convertible Debentures in the nature of Tier II Bonds aggregating Rs.100 Crore for a tenure of 10 years. These debentures are subordinated to present and future “senior indebtedness” of the Company and qualify as Tier II Capital under the National Housing Bank (NHB) guidelines for assessing Capital Adequacies Requirements. These Tier II Bonds were rated ‘IND AAA’” long–term rating by India Rating & Research Pvt Limited (FITCH), ‘[CARE] AAA’ by Credit Analysis & Research Ltd., (CARE) and ‘[ICRA] AAA’ by ICRA Ltd., While reaffirming the ratings by ICRA during February 2016, the outlook on the long–term ratings has been revised from stable to negative. Your Company has serviced the interest on the above debentures on the due date.
c. Commercial Paper
Your Company started mobilising funds through commercial paper (CP) since July 2014. The outstanding at the end of the March 2016 was Rs.1,000 Crore. The effective cost of funds was 7.30% p.a. The CP issue by your Company was rated at the maximum [ICRA] A1+ rating by ICRA Ltd., indicating, “Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations.”
During the year your Company accepted deposits of H67.66 Crore (Previous year Rs.113.62 Crore) The outstanding balance of deposits (including interest accrued, but not due) as of March 31, 2016 was Rs.220.97 Crore (previous year Rs.222.06 Crore). The rate of interest on public deposits ranged from 7% to 9.25%, while the overall cost of deposits was 9.47% p.a. as on March 31, 2016.
As on March 31, 2016, a sum of Rs.17.06 Crore relating to 1,106 accounts (Rs.14.50 Crore as on March 31, 2015 relating to 1,154 accounts) remained unclaimed/overdue. Of this amount, a sum of 2.20 Crore relating to 239 accounts (previous year Rs.6.67 Crore relating to 271 accounts) was claimed and renewed/settled as of May 18, 2016. The depositors whose deposits matured were intimated with a request to either renew or claim their deposits (followed by subsequent reminders). Your company has not defaulted in repayment of deposits or interest during the year. The Company has complied with the requirements under Chapter V of the Companies Act, 2013 to the extent applicable.
During the year, the deposit schemes of your Company are rated ‘MAAA” (pronounced as M Triple A) against ‘MAA+’ (pronounced M double A plus) during the previous year by ICRA Ltd., indicating “highest credit–quality and that the rated deposit programme carried the lowest credit risk”. While reaffirming the ratings by ICRA during February 2016, the outlook on the long–term ratings has been revised from stable to negative. The reason for revision in outlook for the ratings, as stated by ICRA was due to revision in outlook for long–term debt programme of sponsor bank.
Your Company, being a housing finance company registered with National Housing Bank (NHB), has complied with the Directions/ Guidelines issued by the NHB with regard to deposit acceptance and renewal. Your Company is exempted from the applicability of the Companies (Acceptance of Deposits) Rules 2014
e. Mortgage–backed securities
Your Company did not opt for any securitisation during the year under review or during the previous year. There were no securitised assets outstanding as on March 31, 2016.
8. Compliance with Directions/Guidelines of
National Housing Bank (NHB) and other statutes Your Company adhered to the prudential guidelines for nonperforming assets (NPAs) as per the National Housing Bank (NHB)
Directions 2010, as amended from time to time. Your Company complied with the guidelines and directions issued by NHB on withdrawal of pre–closure charges for all loans. The Guidelines/ norms for asset classification of credit/investments, credit rating, acceptance of deposits, Fair Practices Code (FPC), Most Important Terms and Conditions (MITC) Customer Complaints Redressal Mechanism, Know Your Customer (KYC), Anti–Money Laundering (AML) Guidelines, Asset Liability Management, Capital Adequacy Ratio (CAR) norms, Customer Redressal
Mechanism and other related instructions, issued by the National Housing Bank (NHB) were implemented in letter and spirit with an explicit notification on the website of your Company. As per the National Housing Bank Circulars NHB.HFC.DIR.4/ CMD/2012 dated January 19, 2012 and NHB.HFC.DIR.9/ CMD/2013 dated September 6, 2013, in addition to the provision for non–performing assets, your Company has made a general provision @: (i) 1% of Standard Assets in respect of Commercial Real Estates other than Residential Housing,
(ii) 0.75% of Standard Assets in respect of Commercial Real Estate – Residential Housing, and
(iii) 0.40% of the total outstanding amount of loans, which are Standard Assets other than (i) and (ii) above.
Loans to individuals for third dwelling units onwards are treated as Commercial Real Estate (CRE) exposure. A provision of Rs.14 Crore was made in the books as on March 31, 2016 and the cumulative provision in that regard stood at Rs.52 Crore as on the above date.
The recognition of income and provision for all assets was made in the books as per the Guidelines on Prudential Norms applicable as of March 31, 2016.
Your Company carved out Rs.19.04 Crore from current year P&L and Rs.18.50 Crore from General Reserves towards DTL as per NHB guidelines NHB(ND)/DRS/Pol.62/2014 dated May 27, 2014 and NHB(ND)/DRS/Pol.65/2014 dated August 22, 2014 and ensured full compliance of regulatory guidelines. Amount which is proposed to be transferred to reserves is given in detail in Note no. 3 of Notes forming part of the financial statements
Your Company has complied with the Accounting Standards issued by the ICAI, New Delhi, and other related statutory Guidelines/Directions as applicable to the Company from time to time. Compliance of all Regulatory guidelines of NHB/other statutes are periodically reviewed at Audit Committee/Board.
9. Compliance under the Companies Act, 2013
The Companies Act, 2013, with Rules, were notified with effect from April 01, 2014 with substantial changes in the requirement of law. Your Company has complied with the requirements of the above Act, as applicable, during FY 15–16. In accordance with Sec 134 (3) (a) of the said Act, an extract of the Annual Return in the prescribed format is appended as Annexure 4 to this Report.
10. Capital Adequacy
The Capital Adequacy Ratio (CAR) of Your Company as at March 31, 2016 was 20.69% (previous year 18.39%), well above the Regulatory benchmark of 12% prescribed by the National Housing Bank (NHB). The increase in CAR was mainly due to downward revision of risk weightages by the National Housing Bank during October, 2015 as per directions of NHB/HFC/DIR17/ MD&CEO/2015/dt–October 9, 2015.
Depreciation was calculated on the Written Down Value Method as per the useful life, in the manner prescribed in Schedule II to the Companies Act, 2013. The Company reworked the useful life on various Fixed Assets as prescribed in Part C of Schedule II of the Companies Act, 2013 in FY 14–15. In respect of those assets whose remaining useful life as on April 01, 2014 was Nil, the same was adjusted to the General Reserve in FY 14–15 as prescribed under 7(b) to the notes of the said Schedule II of the Companies Act, 2013. Your Company followed the similar method for FY 15– 16 also.
12. Deferred Tax Liability (DTL)
Vide Circular NHB (ND)/DRS/Pol.62/2014 dated May 27, 2014, the National Housing Bank (NHB) directed Housing Finance Companies (HFCs) to provide for deferred tax liability with respect to the balance in the Special Reserve created under Section 36(1) (viii) of the Income Tax Act, 1961 as on March 31, 2014 and permitted to adjust the same from retained earnings. Further, vide Circular NHB(ND)/DRS/Pol.65/2014 dated August 22, 2014, NHB permitted HFCs to adjust the Deferred Tax Liability in a phased manner over three years in the ratio of 25:25:50 starting from FY 14–15. Accordingly, your Company has to adjust the DTL of Rs. 7399.96 Lakh in three years. During the current year, your Company has transferred Rs.1,850.00 Lakh (Previous Rs.1,850.00 Lakh) from the General Reserve to DTL, on the Special Reserve outstanding as on March 31, 2014.
Further, Deferred Tax Liability (net) of Rs.1,675.56 Lakh (previous year Rs.797.91 Lakh) was charged to the Statement of Profit & Loss, on account of various components of asset & liabilities including Special Reserve appropriated during the current year. Further, Deferred Tax Liability of Rs.19.04 Crore (previous year Rs.9.69 Crore) was charged to the Statement of Profit & Loss, because of Special Reserve appropriated during the current year.
13. Recovery Action under Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act)
During the year, your Company initiated action against 73 defaulting borrowers under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (“SARFAESI”) Act, 2002 and recovered Rs.2.66 Crore (previous year Rs.2.79 Crore) from borrowers of Non–Performing accounts. By way of seized assets, your Company has recovered Rs.1.09 Crore (previous year – Rs.0.82 Crore). During the year, Company recovered Rs.0.74 Lakh in written off accounts (previous year Rs.0.37 Lakh). During the year, your Company negotiated one–time settlement (OTS) with eligible NPA borrowers as per its recovery policy and recovered Rs.206.65 Lakh (previous year Rs.231.60 Lakh).
14. Listing of Securities
The equity shares of the Company are continued to be listed on the BSE Limited (BSE), Mumbai, and the National Stock Exchange of India Ltd. (NSE), Mumbai. The listing fee payable to these Stock Exchanges were paid before the due dates.
The Securities & Exchange Board of India, vide its letter dated December 26, 2014 bearing No. WTM/ RKA/MRD/165/2014, granted an exit to the Bengaluru Stock Exchange Ltd., (BgSE)., Bengaluru.
Listing Agreement: The Securities Exchange Board of India (SEBI), has notified the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 on September 2, 2015 with the aim to consolidate and streamline the provisions of Listing Agreements for different segments of capital to ensure better enforceability. The Regulations were effective from December 1, 2015.
Accordingly, as per the requirements, your Company entered into Listing Agreements with the National Stock Exchange of India Ltd and BSE Limited within the prescribed period. Shri K.S. Sathyaprakash, FCS, continued to be the Compliance Officer of the Company during the FY 15–16. The Board of Directors have authorised the Company Secretary and the Chief Financial Officer, severally, for reporting disclosure of material events, if any, in terms of Regulation 30 of the said Regulations.
15. Human Resources Development
The total number of employees of your Company was 553 (395 regular and 158 on contract) as on March 31, 2016 as against 491 (318 regular and 173 on contract) as at the end of the previous year. Your Company adopted the policy of recruiting local people in the respective branch locations to improve functional efficiency of the branches. Attrition rate stood at about 2% for regular employees, which is far below the industry level. To prepare employees in addressing the latest changes/ developments in the housing finance area and related subjects, some employees were deputed for training programmes/ seminars on topics of relevance to housing finance, organised by the National Housing Bank and other reputed institutions.
During the year, training in credit, information technology, human relations, finance, taxation, marketing, fraud prevention and other topics of importance were imparted to employees and executives. Your Company has put in place a series of HR measures including timely/continuous promotions, proper placements, implementing appropriate employee recognition schemes, rewards for good work at Board level, promising career path etc. Besides, eligible branches/branch employees were rewarded with unique cash incentives for reducing SMAs and NPAs. Industrial relations in your Company continued to be cordial during the year.
Particulars of Employees:
During FY 15–16, your Company had not employed anyone with a remuneration of Rs.60 Lakh or more per annum nor had employed for a part of the year with a remuneration of Rs.5 Lakh or more. The ratio of remuneration of each Director to the median of employees remuneration and such other details as required under Sec 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, are furnished below:
i. The ratio of the remuneration of Managing Director to the median remuneration of the employees (regular employees) of the Company for the FY 15–16 was 5.58 : 1 (Non–executive directors and Independent Directors are eligible for sitting fee only)
ii. The percentage increase in remuneration in the financial year for Managing director was 28.00% (the remuneration of Managing Director is as per the Service Regulations of Canara Bank in terms of the resolution passed by the members at the General Meeting for appointment in the Company).
The Chief Financial Officer and the Company Secretary are employees of the Company and the percentage increase in their remuneration was 21% and 23% respectively.
iii. The percentage increase in the median remuneration of employees in the financial year: 26.56%.
iv. The number of permanent employees on the rolls of the Company: 395
v. The explanation on the relationship between average increase in remuneration and Company’s performance: The increase in remuneration of the employees is as per the HR Policy of the Company and not in relation to the performance of the Company. The variable Component of the salary of the employees is linked to the performance of the employee in terms of his/her key responsibility area.
vi. Comparison of the remuneration of the Key Managerial Personnel against the performance of the Company: For the FY 15–16, the total remuneration paid to the KMPs were approx. 0.34% of the net profit for the year.
vii. The Market capitalisation of the Company has increased from Rs.1,615.68 Crore as of March 31, 2015 to Rs.3,070.57 Crore as of March 31, 2016. Over the same period, the price to earnings ratio moved from 18.73% to 19.56%. The Company’s stock price as at March 31, 2016 has increased to Rs.1,154.35 (NSE) from Rs.607.40 (NSE) as at March 31, 2015.
viii. Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration: Average % increase in remuneration of the employees was around 15%, whereas that of Managerial remuneration was around 26%.
ix. Comparison of the each remuneration of the Key Managerial Personnel against the performance of the Company: % increase Y0Y in the net profit of the Company was around 45% and that of the KMPs were as per para (ii) of the above.
x. The key parameters for any variable component of remuneration availed by the directors and the ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the financial year: Not Applicable
xi. The Company affirms remuneration is as per the Remuneration Policy of the Company.
During the year the Company has not engaged any employee drawing remuneration exceeding the limit specified under section 197(12) read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
The Company has a Policy on “Prevention of Sexual Harassment of Women at Workplace” and matters connected therewith or incidental thereto covering all the aspects as contained under the “The Sexual Harassment of Women at Workplace (Prohibition, Prevention and Redressal) Act, 2013”. During FY 15–16 no cases of sexual harassment were reported. The Company has laid down a Code of Conduct for Prevention of Insider Trading, in accordance with the requirements under the Securities and Exchange Board of India (Prevention of Insider Trading) Regulations, 2015 and Companies Act, 2013, with a view to regulate trading in Securities of the Company by its directors, designated persons and employees. The same is made available on the website of the Company.
16. Transfer of Unclaimed and Unpaid Dividend/ Deposit Amounts to the Investor Education and Protection Fund (IEPF)
In terms of (section 125 of the Companies Act, 2013 yet to be notified) the amounts (dividend, deposits etc., with interest) that remained unclaimed and unpaid for more than 7 years from the date they first became due for payment, should be transferred to IEPF.
As an investor–friendly measure, your Company has been intimating the respective shareholders/depositors/investors to encash their dividend warrant/renew matured deposits or lodge their claim for payment of due, if any, from time to time and claims made are settled. As per the statutory requirements, unclaimed deposits/ other dues for the previous seven years as of the date of the Annual General Meeting are made available on the website of MCA–IEPF as well as on the Company’s website.
In order to receive prompt payment of dividend, the members/ investors are requested to demat the shares held in physical mode, register bank account particulars, opt for ECS facility, register nomination and intimate change of address, if any, to the Company/Depository Participants promptly.
a. Unclaimed dividends
As at March 31, 2016, dividends aggregating to Rs.98.34 Lakh (previous year Rs.83.63 Lakh) relating to dividends declared for the years FY 08–09 to FY 14–15 (of which Rs.25.57 Lakh related to dividend for the year 2015), had not been claimed by shareholders. As an investor friendly measure, your Company has intimated shareholders to lodge their claims and related particulars were provided in the annual reports each year as well as on the website of your Company.
The dividend pertaining to 2007–08, which remained unclaimed/unpaid amounting to Rs.7.43 Lakh (in respect of 1,873 shareholders), was transferred to IEPF in October 2015, after the settlement of claims by members received in response to the individual reminder letters sent by your Company to the respective members.
The dividend pertaining to 2008–09 remaining unclaimed and unpaid, amounting to H5.49 Lakh (in respect of 1,880 shareholders) as on March 31, 2016, would be transferred to IEPF during August 2015 after settlement of the claims received up to the date of completion of seven years.
b. Unclaimed deposits
As required under Section 125 of the Companies Act, 2013 (corresponding Section 205C of the Companies Act, 1956), the unclaimed and unpaid deposits together with interest for the year 2007–08 amounting to Rs.3.62 Lakh (previous year Rs.19.43 Lakh) that remained unclaimed and unpaid for a period of 7 years were transferred to IEPF during the year under review.
17. Particulars regarding conservation of energy, technology absorption and foreign exchange earnings and expenditure
Since your Company is a housing finance Company and does not own any manufacturing facility, the requirement relating to providing the particulars relating to conservation of energy and technology absorption as per Sec 134 (3) (m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules 2014, are not applicable.
Your Directors are pleased to inform that Solar Power systems and power saving lamps have been installed in 13 branches so far as a measure for conservation of energy. Your Company has installed Solar–UPS in some of its branches. Certain branches of your Company have been using solar power energy, LED lamps etc.
As a part of Save Green efforts and leverage of technology, a lot of paper work at branches and the Registered office has been reduced by suitable leveraging of technology (also refer para 5). During the year, your Company did not earn any income or incur any expenditure in foreign currency/exchange other than payment of Dividend to NRIs on repatriation basis to an extent of Rs.12 Lakh through authorised dealers.
18. Directors & Key Managerial Personnel
Appointments / Re–appointments:
The Board of Directors made the following appointments / reappointments based on the recommendations of the Nomination and Remuneration Committee :
(1) Shri C. Ilango, Managing Director (General Manager, Canara Bank) was re–appointed as the Managing Director with effect from April 28, 2016
(2) Shri Sarada Kumar Hota, Dy. General Manager, Canara Bank was appointed as Additional Director and Whole–time Director with effect from April 28, 2016
(3) Smt. Bharati Rao, Former Dy. Managing Director of State Bank of India was appointed as Additional Director (Independent Director) with effect from April 28, 2016
(4) Shri Sarada Kumar Hota, Whole–time Director of the Company has been appointed as the Managing Director with effect from May 19, 2016, consequent to repatriation of Shri C.Ilango, Managing Director, to Canara Bank.
The directors had filed their consent(s) and declarations that they are not disqualified to become directors in terms of the provisions of Companies Act, 2013 and related Rules. The directors have intimated to the Company that they are not holding any shares or taken any loan(s) from the Company.
The particulars of directors including their profile are provided in the Report of Directors on Corporate Governance forming part of this Annual Report. Further, the agenda relating to appointments / re–appointments of Directors are provided in the Notice of the 29th Annual General Meeting of the Company seeking approval and/or ratification from the members. The particulars relating to the Directors and all other relevant information are provided in the explanatory statement forming part of the said Notice for the information of members.
The Board of Directors appointed Smt. Veena G Kamath, ACS, as the Company Secretary with effect from April 1, 2015. Further, the Board of Directors appointed the said Company Secretary as the Compliance Officer with effect from May 2, 2016. Shri K.S. Sathyaprakash, FCS, Dy. General Manager and the former Company Secretary of the Company continued to be the Compliance Officer till May 1, 2016.
Retirement by rotation:
In terms of Section 152 and all other applicable provisions of the Companies Act, 2013, and the Articles of Association of the Company, Shri S.A. Kadur, Director, retires by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re–appointment. The particulars relating to Shri S.A. Kadur, Director are provided in the Report of the Directors on Corporate Governance. Your Directors recommend the re–appointment of Shri S.A. Kadur as a Director.
The agenda relating to re–appointment of Shri S.A. Kadur, Director, forms part of the notice convening the ensuing Annual General Meeting and all other relevant information as per SEBI Regulations are provided in the explanatory statement.
Shri C. Ilango, Managing Director of the Company submitted his resignation with effect from May 18, 2016 (after office hours) consequent to his repatriation to Canara Bank, as necessary permission was not accorded by the competent authority for extension of tenure beyond 5 years. The Board places on record its appreciation for the services rendered by Shri C. Ilango during his tenure of five years with the Company
Smt. Bharati Rao, Additional Director resigned from the Board of the Company with effect from May 18, 2016 due to personal reasons.
19. Meetings of the Board
During the year, six meetings of the Board of Directors were held and the related details, including that of various committees constituted by the Board, are made available in the Report of Directors on Corporate Governance forming part of the annual report placed before the members.
Committees of the Board
Currently the Board had six Committees viz. the Audit Committee, the Nomination and Remuneration Committee, the Corporate Social Responsibility Committee, the Stakeholders Relationship Committee, the Risk Management Committee and the Management Committee. A detailed note on the composition of the Board and its Committees and other related particulars are provided in the Report of Directors on Corporate Governance forming part of this Annual Report
20. Directors’ Responsibility Statement
In accordance with the provisions of Section 134(3)(c) read with Section 134(5) of the Companies Act, 2013, and based on the information provided by the Management, the Board of Directors report that:
a) In the preparation of annual accounts, the applicable Accounting Standards have been followed along with proper explanation relating to material departures, if any;
b) the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss of the Company for that period;
c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
d) the Directors have prepared the annual accounts on a going concern basis;
e) the Directors, in the case of a listed Company, have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively and
f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
The Independent Directors have given declarations to the Company in terms of with Section 149(7) of the Companies Act, 2013 that they meet the criteria of independence as provided in sub–section(6) of Section 149.
Code of Conduct
In terms of Regulation 26(3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, all the members of the Board and Senior Management Personnel have affirmed compliance with the Code of Conduct of Board of Directors and Senior Management for the FY15–16. As required under Schedule V (D) of the said Regulations, a declaration signed by the Managing Director & Chief Executive Officer of the Company stating that the members of the Board and the Senior Management Personnel have affirmed compliance of their respective Codes of Conduct, is enclosed to this Report as Annexure 2.
21. Nomination and Remuneration Committee (NRC)
Your Company constituted a Nomination and Remuneration Committee (NRC) of the Board in terms of Section 134(3)(e) of the Act and Regulation 19 of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 consisting of 3 Directors. This Committee identifies persons who are qualified to become Directors of the Company. The appointment, renewal, reappointment, re–categorisation and/or removal of the Directors so identified, including extension or continuation of the term of appointment, will be recommended by the NRC to the Board. This Committee has also laid down the criteria to identify persons who may be appointed to the senior management of the Company. The NRC has formulated the criteria for determining qualifications, positive attributes and independence of a Director, carrying out evaluation of every Director’s performance. The NRC Policy of the Company covering all the above aspects is made available on the official website of the Company viz: http://www.canfinhomes. com/Aboutus/Board of Director (path).
22. Corporate Social Responsibility (Csr) Policy
The CSR Rules made effective from April 1, 2014, are intended to promote socio–economic development in rural areas, improve education, eradicate hunger, promote gender equality, etc. The Rules include a mandate for business entities to spend a minimum of 2% of their average net profit of the preceding 3 years on CSR initiatives.
Your Company constituted a Corporate Social Responsibility (CSR) Committee of the Board as prescribed under Section 135 of the Act and has put the CSR policy in place. The total amount to be spent under the CSR initiatives for FY 15–16 was Rs.372 Lakh (previous year Rs.162 Lakh), out of which projects sanctioned under CSR activities was Rs.303 Lakh, out of which an amount of Rs.109 Lakh was spent (previous year Rs.3.10 Lakh) during the year. The unspent amount of Rs.263.28 Lakh for FY 15–16 (previous year Rs.158.90 Lakh) is carried forward as per provisions of Companies Act with the aim to go in for granular details/ appropriate projects before spending in FY 16–17. The Annual Report on CSR activities including brief contents are provided as an Annexure 6 to this report.
23. Risk Management Policy
Your Company has constituted a Risk Management Committee with two directors and senior executive of the Company. In terms of Section 134 (3) (n) of the Act, your directors wish to state that your Company has drawn and implemented a risk management policy including identification therein of elements of risks, if any, which in the opinion may threaten the existence of your Company. The above policy is being reviewed/re–visited once a year or at such other intervals as deemed necessary for modifications and revisions, if any.
24. Audit and Internal Control
Your Company strengthened the adequacy of the existing internal control systems for loan reviews at periodical intervals and measures for minimising operational risks commensurate with the nature of its business and the size of operations. Further, your Company has established clear delegation of authorities and standard operating procedures for all parts of the business/ functions. Your Company has further strengthened Offsite Transaction Monitoring System (OTMS) to track transactions/ early–warning signals across all branches by introducing new monitoring tools.
The National Housing Bank conducts inspection of your Company on an annual basis. During the year, the NHB conducted credit inspection of your Company in September 2015 for the position as at March 2015. The compliance on the observations was submitted within the prescribed time to the NHB, which was reviewed, by the Audit Committee and the Board.
All the branches are subjected to quarterly/half yearly audit by external auditors who conduct audit and submit their reports. Your Company has also put in place a well– defined policy on Risk Based Internal Audit (RBIA) and as per the said policy all the 110 branches that became due for audit, were audited in FY 15–16. Apart from the RBIA Audit, considering the volume of the business, branches are also subjected to quarterly/ half yearly internal audit by empanelled audit firms. The Audit Committee reviewed the audit reports/remarks/ observations and replies/ compliances including the compliance with KYC norms.
25. Secretarial Audit
The Secretarial Audit for FY 15–16 was conducted as required U/s.204 of the Companies Act 2013, by S. Kedarnath and Associates, a firm of Company Secretaries in Practice. In terms of Section 204(3) of the Act, your Directors are pleased to inform that there was no qualification or observation or other remarks made by the said Company Secretaries in their Secretarial Audit Report. The Secretarial Audit Report issued by the Practising Company Secretaries is enclosed to the report of Directors in terms of Section 134(3) (f) read with Section 204(1) of the Act.
Loans , Guarantees or Investments:
There are no particulars of loans, guarantees or investments made during the year in terms of Section 186(1) and 186(2) of the Act requiring disclosure to be made in the report of Directors as required under Section 134(3)(g) of the Act. In terms of Section 186(11)(a) the requirement relating to the disclosure is not applicable to a loan made, guarantee given or security provided by a housing finance company.
Related Party Transactions:
The particulars of contracts or arrangements with the ‘Related Parties’ referred to in sub–section (1) of Section 188 of the Act are furnished in Note No.30 of the Notes forming part of the financial statements for FY 15–16, forming a part of the annual report. The particulars of Related Party Transaction as required u/s sec 134(3)(p) and 134(3)(n) in the prescribed format is attached to this Report as Annexure 5.
M/s K.P. Rao & Co., Chartered Accountants, Bengaluru, Statutory Auditors of your Company (Firm Registration No.003135S) appointed by the members at the 28th Annual General Meeting (AGM) of your Company held on July 08, 2015 and other 42 firms of branch auditors who were appointed by the Board based on the approval of the members at the above AGM, to hold office from the conclusion of the said meeting until the conclusion of the ensuing AGM of your Company, would retire at the ensuing AGM and are eligible for re–appointment. Your Company has obtained the consent and a certificate from the statutory auditors under section 139 of the Companies Act, 2013 to the effect that their re–appointment, if made, would be in accordance with the conditions as may be prescribed. The statutory auditors have also confirmed that they hold a valid certificate issued by the ‘Peer Review Board’ of The Institute of Chartered Accountants of India.
Your Directors recommend the appointment/re–appointment of M/s. K.P.Rao & Co, Chartered Accountants as the Statutory Auditors. The resolutions seeking approval of the members for appointment of Statutory Auditors and fixation of their remuneration and authorisation to the Board of Directors for appointment of Branch Auditors and fixation of their remuneration are included in the notice convening the ensuing Annual General Meeting. The above said appointment attracts the provisions of Section 139, 142, 143 and all other applicable provisions, if any, of the Companies Act, 2013 and Rules.
Statutory Auditors Report:
In terms of Section 134(4) and 134(3)(ca) of the Act, your Directors are pleased to inform that, as in the previous years, there is no qualification, reservation or adverse remark or disclaimer made by the statutory auditors of the Company in their audit report for the financial year FY 15–16.
The Board has adopted policies and procedures for ensuring the orderly and efficient conduct of its Business, adherence to its polices, safeguarding its assets, prevention and detection of frauds/errors, accuracy and completeness of the accounting records and timely preparation of reliable financial disclosures. M/s K P Rao & Co, the Statutory Auditors of the Company have audited the Internal Financial Controls over the Financial Reporting of the Company and submitted a Report, which forms part of the Auditors’ Report, placed before the members together with the Financial Statements for FY 15–16.
Your Directors wish to inform that there are no material changes and commitments, other than what is reported in the financial statements, affecting the financial position of your Company which occurred between the end of the financial year of your Company to which the financial statements relate and the date of this report. Your Director also wish to inform that there were no significant and material orders passed by the Regulations/Courts/ Tribunals impacting the going concern status and Companies operations, in future.
27. Management Discussion and Analysis Report
In terms of Regulation 34(2) of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the Management Discussion and Analysis Report forms part of this annual report.
28. Corporate Governance
As required under the Companies Act, 2013 and Regulation 34 read with Schedule V of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the ‘Report of Directors on Corporate Governance’ for the year FY 15–16 is placed in this annual report.
The said Report covers in detail the Corporate Governance Philosophy of the Company, Board Diversity, Directors appointment and remuneration, declaration by Independent Directors, Board evaluation, familiarisation programme etc.
Business Responsibility Report:
The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, mandates inclusion of Business Responsibility Report (BRR) in the prescribed format, as a part of the Annual Report for top 500 listed entities based on the market capitalisation in compliance with the said Regulations, the BRR is provided as a part of this Report.
In terms of Regulation 17(10) of the SEBI (Listing Obligations & Disclosure Requirement) Regulations, 2015, your Company has put in place the ‘Board and Director’s Evaluation Policy’ laying down a framework for evaluation of the Board, its Committees and of the individual directors with defined attributes for evaluation. The results of the evaluation exercise will be shared with the Board in subsequent Board Meeting(s), including listing of the identified strengths, areas of improvement and actions to be taken, if any.
29. Save Green Efforts
In recognition and support to the green initiative taken by the Ministry of Corporate Affairs (MCA), Government of India, your Company is sending AGM notices, annual reports, correspondence with the stakeholders etc. to the respective e–mail IDs of stakeholders. As a step towards paperless banking, initiatives taken by your Company include ECS facility for repayment of loans, streamlining the systems and procedures for reporting by the branches and at the Registered Office through Integrated Business Suite (IBS), networking of branches with the Registered Office, harnessing solar energy for lighting and computer operations in three new branches (13 in all) and the like.
The usage of the paper is minimised.
As in the previous years, we are publishing only the statutory disclosures in the print version of the Annual Report. Electronic copies of the Annual Report and Annual General Meeting Notices are being sent to all members whose e–mail address are registered with the Company/Depository participants. For members who have not registered their e–mail address, physical copies are sent in the permitted mode.
30. Outlook for 2016–17
The RBI and the Government continued the policy of managing inflation, promoting investment through employment generation and improving infrastructure. The real estate industry (including housing) is expected to strengthen in the current year across the country; credit off take is likely to improve. Reduction of interest rates are expected and the consequent impact on spreads are expected to sustain .
Your Company drew out a challenging business plan for FY 16– 17 with target loan book size of Rs. 13,500 Crore by March’17. Your Company would continue to focus on lending to individual segments preferably the salary class, increasing the Non Housing Loan ratio, further improve asset quality, reducing cost of funds further, increasing operations and profits.
Your Company has drawn a vision document upto the year 2020, with an aim to reach a loan book size of Rs. 35,000 Crore by March 2020. Your Company expects to sustain performance growth during 2016–17.
However, given the indications about the likely changes in the cost of funds and expectations of borrowers for availing loans at lesser rates, etc., margins are expected to remain under pressure.
Your Directors would like to thank Canara Bank for consistent support.
Your Directors would like to acknowledge the role of all its stakeholders viz., shareholders, debenture holders, CP holders, depositors, bankers, lenders, borrowers, merchant bankers, Debenture Trustees and all others for their continued support to your Company and the confidence and faith that they have always reposed in your Company.
Your Directors acknowledge and appreciate the guidance and support extended by all the Regulatory authorities including National Housing Bank (NHB), Securities Exchange Board of India (SEBI), Ministry of Corporate Affairs (MCA), Registrar of Companies, Karnataka, the Stock Exchanges and the NSDL and CDSL.
Your Directors thank the Rating Agencies ICRA, CARE, India Ratings & Research Ltd., (FITCH), the Registrars Share Transfer Agents of your Company Government(s), local/statutory authorities, and all others for their whole–hearted support during the year and look forward to their continued support in the years ahead. Your Directors value the professionalism of all the employees who have worked in a challenging environment and whose efforts have stood the Company in good stead and taken it to present level. For and on behalf of the Board of Directors
Sd/– K.N. Prithviraj
Date: May 18, 2016