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Updated:30 Oct, 2020, 15:59 PM IST

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Updated:30 Oct, 2020, 16:01 PM IST

BOARD'S REPORT

TO

THE MEMBERS,

Your Directors have pleasure in presenting their twelfth Annual Report and Audited Accounts for the year ended on March 31, 2016.

Overview

The Company was originally incorporated as Ujjivan Financial Services Private Limited on December 28, 2004 at Bengaluru, Karnataka, India as a private limited company under the Companies Act, 1956. Pursuant to a certificate issued by the Reserve Bank of India ("RBI") on October 31, 2005, the Company was permitted to commence operations as a non–banking financial company ("NBFC") under section 45 IA of the Reserve Bank of India Act, 1934. Since financial year 2008–09, the Company has been classified as a systemically important non–deposit accepting NBFC. The Company was granted NBFC–Microfinance Institution ("NBFC–MFI") status by the RBI on September 5, 2013. Subsequently, the Company was converted into a public limited company pursuant to a special resolution passed by its Shareholders at the extraordinary general meeting ("EGM") held on November 3, 2015 and the name of the Company was changed to Ujjivan Financial Services Limited. A fresh certificate of incorporation consequent upon conversion to a public limited company was issued by the Registrar of Companies, Bangalore, Karnataka ("RoC") on November 26, 2015. Subsequently, a fresh certificate of NBFC–MFI registration consequent upon the change of name of the Company was issued by the RBI on March 4, 2016.

On October 7, 2015, the Company was one amongst 10 companies in India, out of a total of 72 applicants, to receive in–principle approval from the RBI to set up a small finance bank ("SFB").

The Company completed its maiden Initial Public Offering (IPO) and its equity shares were listed in NSE and BSE on May 10, 2016. For further details on the IPO, please refer to the section "Initial Public Offering".

2. Dividend

Based on the Company's performance, the directors are pleased to recommend for approval of the members a dividend of Rs. 0.50 per equity share for the FY 2015–16. The dividend on equity shares, if approved by the shareholders would involve a cash outflow of Rs. 7.12 crore (including dividend distribution tax).

3. Transfer to reserves

The Company transferred Rs. 35.44 crore to Statutory Reserves. Transfer of 20% of the Profit after Tax to the statutory reserves in accordance with the provisions of section 45 – IC Reserve Bank of India Act, 1934.

4. Credit Rating

CRISIL has assigned the Company a grading of mfR1 (the highest grading for MFI) in October 2015. CARE has assigned a 'CARE A' rating (Reaffirmed) to Ujjivan in December 2015 for its Long Term Bank Facilities of Rs. 3,500 crore and has assigned a rating of 'CARE A' for its NCDs of Rs. 400 crore. ICRA assigned a rating of 'ICRA A–' for its NCDs of Rs. 75 crore and a rating of 'ICRA A' (revised from 'ICRA A–') for its NCDs of Rs. 90 crore.

5. Capital Adequacy

The Capital Adequacy Ratio of the company was 24.14% as of March 31, 2016 as against the minimum capital adequacy requirements of 15% by RBI.

6. Corporate Governance

A corporate governance report is provided separately and forms part of this Directors' Report.

7. Extract of Annual Return

In accordance with Section 134(3)(a) of the Companies Act, 2013, an extract of the Annual Return in the prescribed format (MGT–9) is appended as "Annexure 1" to the Board's Report.

8. No. of Meetings of the Board during the FY 2015–16

During the Financial Year 2015–16, our Board has met ten times and the meetings of our Board of Directors were held on June 04, 2015, September 11, 2015, September 29, 2015, November 23, 2015, December 11, 2015, December 17, 2015, December 29, 2015, February 01, 2016, February 15, 2016 and March 17, 2016. For further details, please refer to the Corporate Governance Report, which forms part of this report.

9. Directors' Responsibility Statement

Pursuant to Section 134(5) of the Companies Act, 2013, the Board of Directors of the Company confirms and state that:

(i) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(ii) the directors had selected such accounting policies and applied them consistently and made judgments 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;

(iii) the directors had 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;

(iv) the directors had prepared the annual accounts on a going concern basis;

(v) 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

(vi) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Based on the framework of internal financial controls and compliance systems established and maintained by the Company, audit of internal financial controls and the reviews performed by management and the risk management and audit committee of the board, the board is of the opinion that the Company's internal financial controls were adequate and effective during the FY 2015–16.

10. Declaration by Independent Directors

The Company has received necessary declarations of independence from each of its Independent Directors under section 149(7) of the Companies Act, 2013, that he/she meets the criteria of independent director envisaged in section 149 (6) of the Companies Act, 2013

All Independent Directors have submitted the declaration of Independence, as required pursuant to Section 149(7) of the Act, stating that they meet the criteria of Independence as provided in section 149(6) of the Companies Act, 2013 and are not disqualified from continuing as Independent Directors.

11. Nomination and Remuneration Policy

The Company pursuant to the provisions of Section 178 of the Companies Act, 2013 has formulated and adopted a nomination and remuneration policy which is disclosed on our website at the below link– <http://ujjivan.com/html/ujjivan> policies.php

12. Auditors

(i) Statutory Auditor M/s Deloitte Haskins & Sells, (Firm Reg. No. 008072S), Chartered Accountants, were appoint–ed as Statutory Auditors of the Company for 2 years till the conclusion of the 13th Annual General Meeting to be held in the year 2017. They have confirmed their eligibility under Section 141 of the Companies Act, 2013 and the Rules framed there under for reappointment as Statutory Auditors of the Company. The Directors recommend the ratification of appointment of M/s Deloitte Haskins & Sells, Chartered Accountants, as Statutory Auditors of the Company from the conclusion of the ensuing AGM till the conclusion of the 13th Annual General Meeting to be held in the year 2017.

(ii) Secretarial Auditor:

Mr. K. Jayachandran, Practicing Company Secretary(ACS No. 11309 and Certificate of Practice No. 4031) was ap–pointed as the Secretarial Auditor of the Company to conduct Secretarial Audit of the Company for the Financial Year 2015–16 as required under Section 204 of the Companies Act, 2013 and the Rules made there under. The Sec­retarial Audit Report for FY 2015–16 is appended as "Annexure 2"to the Directors' Report.

13. Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaim–er made –

(i) Statutory Auditor's report

There are no disqualifications, reservations, adverse remarks or disclaimers in the auditor's report

(ii) Secretarial Auditor's Report

The Secretarial Audit Report does not contain any qualification, reservation or adverse remark made by Secretarial Auditor.

14. Particulars of loans, guarantees or investments under Section 186

The Company has not given any loans and guarantees to any body corporate

15. Transaction with related parties

Information on transaction with related parties pursuant Particulars of contracts or arrangements with related parties referred to in Section 188(1) in the prescribed form AOC –2 is appended as "Annexure 3" to the Board's Report;

16. State of the Company's affairs

Ujjivan is a RBI registered NBFC–MFI Company based in Bangalore and is one of the largest microfinance institutions in the country with the most diversified geographical reach offering a comprehensive suite of financial products and services to the economically active poor.

On October 7, 2015, Ujjivan received an in–principle approval from the RBI to set up a small finance bank ("SFB").

The Company's mission is to "Provide full range of financial services to the economically active poor to build better lives".

As on March 31, 2016, the Company operates through 469 branches spread over 24 states in 4 regions – South,

East, North and West – with an employee strength of 8,049. The Company's present borrower base is 3,050,369, has disbursed Rs. 17,749 crore since its inception and the portfolio outstanding as on March 31, 2016 is Rs. 5,064.40 crore (excluding the securitised portfolio of Rs. 324.20 crore)

Today, Ujjivan offers a diverse range of loan products to cater to the specific requirements of its customers. The Company's products can be classified under two broad categories, namely, Group Loans and Individual Loans. Depending upon the end use, these products can be further sub–divided into agricultural, education, home improvement, and home purchase and livestock loans. All of the Company's assets under management ("AUM") fall under the priority sector lending norms prescribed by the RBI.

17. Material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the financial statements relate and the date of the report;

The Company came out with Initial public offer (IPO) of 42,023,609 equity shares of face value of Rs. 10 each for cash at a price of Rs. 210 per equity share (including a share premium of Rs. 200 per equity share) aggregating to Rs. 882.50 crore comprising a fresh issue of 17,055,277 equity shares aggregating to Rs. 358.16 crore by the company ("fresh issue") and an offer for sale of 24,968,332 equity shares aggregating to Rs. 524.34 crore by 8 selling shareholders.

Subsequent to the completion of the IPO, the paid up equity share capital of the Company got increased from Rs. 1,011,860,280 to Rs. 1,182,413,050. The Company's equity shares got listed on NSE and BSE on May 10, 2016.

The objects of the IPO inter alia was to augment the capital base of the Company and to meet the future capital requirements of the Company arising out of growth of the Company's assets, primarily the Company's loans and advances and other investments. Further, the Company intended to reduce its foreign shareholding in accordance with the requirements of the SFB In–principle Approval to set up an SFB. Post the completion of our IPO and finalisation of basis of allotment, the foreign shareholding in the Company was brought down to 44.86% as on May 06, 2016.

There has been no deviation in the utilization of the IPO proceeds by the Company.

18. The conservation of energy, technology absorption, foreign exchange earnings and outgo, in the manner as prescribed in Rule 8(3) of the Companies (Accounts) Rules, 2014

Conservation of energy and technology absorption

Since the Company does not own any manufacturing facility, the particulars relating to conservation of energy and technology absorption are not applicable.

The Foreign Exchange earnings and outgo

There was no Foreign Exchange inflow and outflow during the year except dividend payout to the foreign shareholders for the dividend declared in the FY 2014–15.

19. Development and implementation of risk management policy

Ujjivan's Risk Management Committee consists of well experienced Directors from diverse background who bring in the best risk practices to the organization. The Risk Management Committee, which meets every quarter, comprises of four Directors including an Independent Director.

The Committee reviews the Risk Management Framework of the company and verifies adherence to various risk parameters and compliances. The Company's Risk Management strategy is based on clear understanding of various risks, disciplined risk assessment and continuous monitoring. The Risk Management Committee reviews various risks which the organization is exposed to including Credit Risk, Interest Rate Risk, Liquidity Risk, Operational Risk and Regulatory Compliance issues. The Risk Committee approves and makes recommendations to the Board regarding all its risk–related responsibilities, including the review of major risk management and regulatory compliances.

The Company has in place an effective risk management policy which highlights the functions, implementation and the role of the committee and the board.

20. Corporate Social Responsibility

The Corporate Social Responsibility (CSR) programs were started by the Company in the year 2010. During the year, Ujjivan CSR Team has mainly focused on the Government of India "Swachh Bharat Abhiyan".

A brief outline of the company's CSR policy is disclosed on our website at the below link–<http://ujjivan.com/html/ujjivan> policies.php

The initiatives undertaken by the Company on CSR activities are out in "Annexure 4" of the Board's Report in the format prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014. For other details regarding the CSR Committee, please refer to the Corporate Governance Report, which forms part of the Board's Report.

21. Board Evaluation

The board of directors has carried out an annual evaluation of its own performance, board committees and individual directors pursuant to the provisions of the Companies Act, 2013 and the corporate governance requirements as prescribed by Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), Regulations 2015 ("SEBI Listing Regulations").

Performance evaluation criteria for Board, Committees of the Board and Directors were approved by the Nomination Committee of the Board at its meeting held on March 24, 2015. The main criteria on which the evaluations was carried out were Director's knowledge & expertise, specific competency and professional experience, board engagement and time commitment.

The performance of the board was evaluated by the board after seeking inputs from all the directors on the basis of the criteria such as the board composition and structure, effectiveness of board processes, information and functioning, etc.

The performance of the committees was evaluated by the board after seeking inputs from the committee members on the basis of the criteria such as the composition of committees, effectiveness of committee meetings, etc.

The board and the nomination and remuneration committee reviewed the performance of the individual directors on the basis of the criteria such as the contribution of the individual director to the board and committee meetings like preparedness on the issues to be discussed, meaningful and constructive contribution and inputs in meetings, etc. In addition, the chairman was also evaluated on the key aspects of his role.

In a separate meeting of independent directors held on March 17, 2016, performance of non–independent directors, performance of the board as a whole and performance of the chairman was evaluated, taking into account the views of executive directors and non–executive directors. The same was discussed in the board in their meeting that followed the meeting of the independent directors, at which the performance of the board, its committees and individual directors was also discussed. Performance evaluation of independent directors was done by the entire board, excluding the independent director being evaluated.

¦ Business Highlights:

¦ 47 new branches in FY 2015–16

¦ 12% growth in new customer outreach. 12 lakh NCA – key trigger: Akarshan loans and Rewards and Recognition programs

¦ Borrower base crossed the important milestone of 30 lakh, 39% growth over March 2015

¦ FY Disbursements at Rs. 6,619 crore, 53% growth over PY

¦ Loyalty loans added a significant Rs. 445 crore to the portfolio

¦ OSP Closed at Rs. 5,064.4 crore, 57% growth over previous financial year

¦ 102% growth in IL business contributing to 13% of total OSP, Secured Housing business off to a healthy start, closing with an OSP of 21 crore

¦ Profitability: Pre–tax profits – Rs. 271.99 crore and post– tax profits – Rs. 177.22 crore for FY2015–16

¦ Efficiency: Focus on improved TAT – GL TAT down to 4.32 days and IL TAT at 6.3 days. OER down to 7.1% on account of prudent expense management and healthy growth in loan book)

(ii) The change in the nature of business, if any; None

(iv) the names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year; None

(v) Deposits from public

During the year, the Company has not accepted any deposits from public and as such, no amount on account of principal or interest on deposits from public was outstanding as on the date of the balance sheet.

(vi) The details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company's operations in future; None

(vii) The details in respect of adequacy of internal financial controls (IFC) with reference to the Financial Statements

In respect of internal financial control, the Board has adopted the policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Company's policies, the safeguarding of its assets, the timely prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information. Further, the management regularly reviews the control for any possible changes and takes appropriate actions.

23. Other disclosures

(i) Details of equity shares with differential rights

The Company has not issued any equity shares with differential rights during the year

(ii) Details of sweat equity shares issued

The Company has not issued any sweat equity shares during the year

(iii) Details of employee stock option scheme

The Company has established Employee Stock Option Plan (ESOP) for compensation to its employees, being ESOP 2006, ESOP 2007, ESOP 2008, ESOP 2010, MD–ESOP 2010 and ESOP 2015.

ESOP 2006

The Company pursuant to resolutions passed by the Board and Shareholders on March 29, 2006 and May 12, 2006, respectively, adopted the ESOP 2006. The ESOP 2006 was for a total of 64,000 Equity Shares for all the eligible employees of the Company. In accordance with the ESOP 2006, each option on exercise would be eligible for one Equity Share on payment of exercise price.

ESOP 2007

Pursuant to resolutions passed by the Board and Shareholders on June 9, 2007 and July 21, 2007, respectively, the Company instituted the ESOP 2007. The ESOP 2007 was for a total of 189,440 Equity Shares for all the eligible employees of the Company. In accordance with the ESOP 2007, each option on exercise would be eligible for one Equity Share on payment of exercise price.

ESOP 2008

Pursuant to resolutions passed by the Board and Shareholders on July 23, 2008 and August 18, 2008, respectively the Company approved the ESOP 2008. The ESOP 2008 was for a total of 396,680 Equity Shares for all the eligible employees of the Company. In accordance with the ESOP 2008, each option on exercise would be eligible for one Equity Share on payment of exercise price.

ESOP 2010 and MD–ESOP 2010

Pursuant to resolution passed by the Board and Shareholder resolutions dated May 17, 2010 and July 12, 2010, respectively, the Company approved the ESOP 2010 and MD–ESOP 2010. The ESOP 2010 and MD–ESOP 2010 were initially for a total of 3,484,250 and 871,060 Equity Shares for all the eligible employees and the managing director of the Company, respectively.

Further, pursuant to the Shareholders resolution dated July 12, 2010 the exercise period under the ESOP 2006, ESOP 2007 and ESOP 2008 was aligned with the exercise period time frame mentioned in ESOP 2010.

Pursuant to sub–division of the face value of the equity shares from face value of Rs.100 each to Rs.10 each on October 12, 2010 and in accordance with ESOP 2010, maximum number of shares available for being granted under ESOP 2010 stood modified and the cumulative face value prior to sub–division remained unchanged.

Pursuant to resolution passed by the Board on August 12, 2011, additional grants were approved under the MD–ESOP 2010 amounting to 378,112. In accordance with the ESOP 2010 and MD–ESOP 2010, each option on exercise would be eligible for one Equity Share on payment of exercise price.

Thereafter, pursuant to resolution passed by the Board and Shareholders on August 8, 2012 and September 12, 2012, respectively, the Company approved creation of a pool of 1,243,233 options under the ESOP 2010 for the Financial Year 2011–12.

As on March 31, 2016, the Company has granted 5,283,592 options under ESOP 2006, ESOP 2007, ESOP 2008, ESOP

ESOP 2015

The Company, pursuant to resolutions passed by the Board and the Shareholders, dated September 29, 2015 and November 3, 2015, respectively has adopted ESOP 2015. The aggregate number of Equity Shares, which may be issued under ESOP 2015, shall not exceed 4,782,129 Equity Shares.

Further, pursuant to resolution passed by the Shareholders on November 3, 2015, an aggregate of 779,059 cancelled/ forfeited options, as on March 31, 2015, under ESOP 2006, ESOP 2007, ESOP 2008 and ESOP 2010 were transferred to option pool of ESOP 2015, thereby making the total employee stock option pool available being 5,561,188 options.

In accordance with the ESOP 2015, each option on exercise would be eligible for one Equity Share on payment of the exercise price. As on March 31, 2016, the Company has granted 1,469,800 options under the ESOP 2015.

The ESOP 2015 is in compliance with Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (SEBI ESOP Regulations), the Companies Act, 2013, and is implemented in accordance with guidance notes issued by ICAI and the relevant accounting standards.

Revisions in the ESOP Schemes during the Year ESOP 2010 – Revision

During the course of time, certain employees who held granted and vested options under the ESOP 2006, ESOP 2007, ESOP 2008 and ESOP 2010 have resigned or deceased.

Pursuant to the resolutions dated December 11, 2015 and December 15, 2015, passed by the Board and Shareholders respectively, the exercise period under the ESOP 2010 was amended by accelerating the exercise period under the ESOP 2006, ESOP 2007, ESOP 2008 and ESOP 2010 to enable former employees or nominees of deceased former employee's option holders, as applicable to exercise their outstanding vested stock options within a given time frame.

As of March 31, 2016, 1,342,283 options are vested and unexercised by existing employees of the Company and 71,816 options are vested and unexercised by former untraceable former employees of our Company pursuant to the ESOP 2006, ESOP 2007, ESOP 2008 and ESOP 2010 schemes.

ESOP 2015 – Revision

Pursuant to the resolutions dated December 11, 2015 and December 15, 2015, passed by the Board and Shareholders respectively, the ESOP Scheme 2015 was amended in order to align it with the provisions prescribed under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, as amended.

ESOP Schemes Compliance Status

As on March 31, 2016, the Company, being an unlisted company, was not required to be compliant with SEBI ESOP Regulations. Further, ESOP 2006, ESOP 2007, ESOP 2008, ESOP 2010 and MD–ESOP 2010 were adopted prior to the commencement of the Companies Act, 2013.

The ESOP 2015 is in compliance with Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (SEBI ESOP Regulations), the Companies Act, 2013.

The ESOP Schemes are implemented in accordance with guidance notes issued by ICAI and the relevant accounting standards.

The guidance note issued by the Institute of Chartered Accountants of India requires the disclosure of pro forma net results and Earnings Per Share (EPS) both basic & diluted, had the Company adopted the fair value method amortising the stock compensation expense thereon over the vesting period, the reported profit for the year ended March 31, 2016 would have been lower by Rs.28,081,792/–and the basic and diluted EPS would have been revised to Rs.19.80/– and Rs.18.88/– respectively.

(ii) Appointment of Independent Directors

The Company in compliance with the provisions of Section 149 has appointed Mr. Nandlal Sarda (DIN: 00147782) as an Independent Director, with the shareholders' approval at the EGM held on November 03, 2015 in accordance with the Act.

He has been appointed for a term of five years from November 03, 2015 to November 02, 2020 on the terms and conditions as mentioned in his appointment letter; the extracts of the terms & conditions of the appointment of the independent directors has been placed on the website of the Company.

(iii) Vigil Mechanism

The Company in compliance with Section 177 of the Companies Act, 2013 and Regulation 22 of SEBI Listing Regulations has established a Whistle Blower policy / Vigil Mechanism for the directors and employees to report genuine concerns or grievances about unethical behavior, actual or suspected fraud or violation of the company's Code of Conduct or Ethics Policy. The Company has a vigil mechanism process wherein the employees are free to report violations of laws, rules, regulations or unethical conduct to the whistle and ethics officer of the Company.

Name and Address of the Whistle and Ethics Officer

Ms. Carol Furtado – Head HR (w.e.f. June 01, 2016)

Ujjivan Financial Services Limited Grape Garden, No. 27, 3rd A Cross, 18th Main, 6th Block, Bangalore – 560095, Karnataka Email– carol.furtado@ujjivan.com

Protected Disclosure against the Whistle and Ethics Officer should be addressed to the CEO & MD of the Company and the Protected Disclosure against the CEO & MD of the Company should be addressed to the Chairman of the Audit Committee.

Name and Address of CEO & MD of the Company:

Mr. Samit Ghosh

Ujjivan Financial Services Limited Grape Garden, No. 27, 3rd A Cross, 18th Main, 6th Block, Bangalore – 560095 Karnataka Email: samit.ghosh@ujjivan.com

Name and Address of Chairman (Audit Committee):

Mr. K. R. Ramamoorthy

D – 302, Mantri Gardens, Jayanagar, 1st Block, Bangalore – 560011, Karnataka Email: ram@bankconsult.co.in

The confidentiality of those reporting violations is maintained and they are not subjected to any discriminatory practice

The whistle blower policy of the Company is disclosed on our website at the below link–<http://ujjivan.com/html/ujjivan> policies.php

ACKNOWLEDGEMENTS

Your Directors wishes to gratefully acknowledge the assistance and guidance received from the RBI, ROC, Investors, Banks, Auditors, Lawyers, Accountants, Suppliers, Partner NGOs, Institutions and Foundations, Police & Government Authorities, Advisors and all our well–wishers. The Board also wishes to place on record their warm appreciation for the creative and dedicated efforts of staff at all levels.

For and on behalf of the Board of Directors

Samit Ghosh

CEO & Managing Director

DIN:00185369

Sunil Patel

Independent Director

DIN:00050837

Date: May 25, 2016

Place: Bangalore

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