Directors' Report The directors present their twenty ninth Annual Report and the standalone and consolidated audited financial statements for FY2016. Performance and financial position of subsidiaries During FY2016, BHFL received a certificate of registration from National Housing Bank and is in the process of commencing housing finance business. During FY2016, there were no major business operations in BHFL and its subsidiary BFinsec. The Profit after tax for FY2016 of BHFL was Rs.529,939 as against Rs. 78,920 for FY2015 and of BFinsec was H 566,846 as against Rs. 154,642 for FY2015. Dividend The directors of the Company, at its meeting held on 9 March 2016, declared an interim dividend of Rs. 18 per equity share of the face value of Rs. 10 (180%) for FY2016. The amount of dividend and tax thereon aggregate to Rs. 116.71 crore. The directors recommend for consideration of the members at the ensuing annual general meeting, payment of final dividend of Rs. 7 per equity share of the face value of Rs. 10 (70%) for AA FY2016. The amount of final dividend and tax thereon aggregate to Rs. 45.39 crore. The interim dividend and the final dividend, if declared, aggregate to Rs. 25 per equity share of the face value of Rs. 10 (250%). The amount of interim dividend and the final dividend, if declared, and tax thereon aggregate to Rs. 162.10 crore. Dividend paid for FY2015 was Rs. 18 per share (180%). The amount of dividend and tax thereon aggregated to Rs. 115.82 crore and includes dividend and tax thereon in respect of equity shares allotted after 31 March 2015 till the date of book closure for the purpose of dividend. Capital infusion Pursuant to the provisions of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, the Companies Act, 2013 and the approval of members and of the Board of Directors, the Company raised funds through: a) Preferential issue of warrants - On 2 June 2015 the Company allotted 925,000 warrants to the promoter, Bajaj Finserv Limited (BFS), at a price of Rs. 4,412 per warrant, which are convertible into equivalent number of equity shares of face value of Rs. 10 each within 18 months from the date of allotment of warrants i.e. on or before 1 December 2016. The Company has received from BFS an amount of Rs. 102.03 crore, being 25% of the issue price of warrants. b) Qualified Institutions Placement (QIP) - On 11 June 2015 the Company allotted 3,274,853 equity shares of face value of Rs. 10 each at a price of Rs. 4,275 per equity share (inclusive of premium of Rs. 4,265 per equity share) to Qualified Institutional Buyers aggregating to about Rs. 1,400 crore. Working results The receivables under financing activity as on 31 March 2016 were Rs. 42,756 crore as compared to Rs. 31,199 crore as on 31 March 2015, an increase of 37% over the previous year. Total income during FY2016 increased to Rs. 7,384 crore from Rs. 5,418 crore during FY2015, an increase of 36% over the previous year. The profit before tax for FY2016 was Rs. 1,965 crore, as against Rs. Rs. 1,357 crore for FY2015, an increase of 45% over the previous year. The profit after tax for FY2016 was Rs. 1,279 crore as compared to Rs.898 crore for FY2015, an increase of 42% over the previous year. This has been due to the Company's healthy net interest margins, operating efficiencies and prudent risk management. The Company's current provisioning standards are more stringent than Reserve Bank of India (RBI) prudential norms. In line with its conservative approach, the Company continues to strengthen its provisioning norms beyond the RBI regulation by accelerating the provisioning to an early stage of delinquencies based on the past experience and emerging trends. The Company had an excellent year aided by strong volume growth in Consumer lending and SME lending. During FY2016, the Company launched various new products and variants to strengthen its business model and continue its growth momentum. The Company's loan loss and provisions increased from Rs. 385 crore in FY2015 to Rs. 543 crore in FY2016 taking into account the increased business. The Company ended FY2016 with a net NPA of 0.28%. Share capital During FY2016, the Company allotted equity shares of face value of Rs.10 each as follows: a) 3,274,853 equity shares to Qualified Institutional Buyers under Qualified Institutions Placement. b) 450,063 equity shares to the trustees of BFL Employee Welfare Trust under the Employee Stock Options Scheme, 2009. c) 15 equity shares in respect of the rights entitlement (in rights issue made in 2013) held in abeyance on 100 equity shares transferred from the unclaimed suspense account. As on 31 March 2016, the paid-up share capital of the Company stood at Rs. 538,721,900 consisting of 53,872,190 equity shares of face value of Rs. 10 each fully paid-up. Operations The operations of the Company are elaborated in the annexed 'Management Discussion and Analysis Report'. Conservation of energy and technology absorption The Company, being a non-banking finance company (NBFC), does not have any manufacturing activity. The directors, therefore, have nothing to report on 'conservation of energy and technology absorption'. Foreign currency Foreign currency expenditure amounting to Rs. 14.83 crore (FY2015 Rs. 6.36 crore) was incurred during FY2016. The Company did not have any foreign exchange earnings. Employee stock option scheme Disclosures pertaining to the Employee Stock Option Scheme, 2009 of the Company pursuant to the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 are placed on the Company's website <https://www.bajajfinserv.in/finance/investor-relations/>annual-reports.aspx Grant wise details of options vested, exercised and cancelled are provided in the notes to the standalone financial statements. Fixed deposits During FY2016, the Company accepted fixed deposits (FDs) of Rs. 1,597.70 crore. FDs outstanding at the year end were Rs. 2,243.29 crore. As on 31 March 2016, there were 8 FDs amounting to Rs. 0.01 crore which had matured and remained unclaimed. Pursuant to the provisions of Reserve Bank of India Act, 1934, the Company has created a charge on statutory liquid assets amounting to Rs. 347.11 crore in favour of the trustee for FD holders. During FY2016, there was no default in repayment of deposits or payment of interest thereon. Adequacy of internal financial controls The Company has documented its internal financial controls considering the essential components of various critical processes, physical and operational, and which includes its design, implementation and maintenance along with periodical internal review of operational effectiveness and sustenance. This ensures orderly and efficient conduct of its business, including adherence to Company's policies, safeguarding of its assets, prevention of errors, accuracy & completeness of the accounting records and the timely preparation of reliable financial information. The internal financial controls with reference to the financial statements were adequate and operating effectively. Credit rating Despite a tough economic environment, the Company retained all its credit ratings owing to high capital adequacy, strong promoter support, tightened credit acceptance criteria and robust asset liability management. CRISIL has reaffirmed the highest rating of "FAAA/Stable" for the fixed deposit programme of the Company. ICRA has also assigned "MAAA/Stable" rating to the fixed deposit programme of the Company. These ratings indicate highest degree of safety with regard to timely payment of interest and principal. The Company is one of the very few NBFCs which enjoys the highest rating for its fixed deposit programme. The Company also enjoys the highest rating of "CRISIL A1+" from CRISIL and "(ICRA) A1+" from ICRA for its short term debt programme for Rs 6,500 crore from each rating agency. The long term non-convertible debentures have been assigned "IND AAA/Stable" rating by INDIA RATINGS, "CRISIL AA+/Positive" rating by CRISIL and "[ICRA] AA+(Stable)" by ICRA indicating the high degree of safety with regard to timely payment of interest and principal for an amount of H 4,000 crore, H 9,350 crore and H 8,000 crore respectively. The Company has also been assigned "IND AAA/Stable" by INDIA RATINGS, "CRISIL AA+/Positive" rating by CRISIL and "[ICRA] AA+(Stable)" by ICRA for Rs. 1,000 crore, H 1,700 crore and Rs. 1,700 crore respectively for the subordinated debt programme. As regards the bank loan ratings for the bank facilities stipulated by RBI, as a part of BASEL II guidelines, INDIA RATINGS has assigned "IND AAA/Stable" and CRISIL has assigned "CRISIL AA+/Positive" rating for the Company's cash credit/working capital demand loan and long term bank facilities. INDIA RATINGS has assigned "IND A1+" rating and CRISIL has assigned "CRISIL A1+" rating for the short term bank facilities. The cumulative rating for the bank loan programme is H 30,000 crore under INDIA RATINGS and H 21,000 crore under CRISIL Ratings. RBI guidelines The Company continues to fulfill all the norms and standards laid down by the RBI pertaining to non-performing assets, capital adequacy, statutory liquidity assets etc. As against the RBI norm of 15%, the capital adequacy ratio of the Company was 19.50% as on 31 March 2016. In line with the RBI guidelines for asset liability management (ALM) system for NBFCs, the Company has an Asset Liability Committee which meets monthly to review its ALM risks and opportunities. The Company is also in compliance with the NBFC - Corporate Governance (Reserve Bank) Directions, 2015. Corporate social responsibility During FY2016, the Company spent H 21.36 crore on corporate social responsibility (CSR). Detailed information report on the CSR policy and the CSR initiatives taken during the year is given in the annexed Annual Report on CSR activities. Formal annual evaluation Information on the manner in which formal annual evaluation has been made by the Board of its own performance and that of its Committees and individual directors is given in the annexed 'Corporate Governance Report'. Directors and Key Managerial Personnel (KMP) The Board of Directors, at its meeting held on 23 March 2015, appointed Rajeev Jain, CEO, (DIN 01550158) as an additional director w.e.f. 1 April 2015 and as a Managing Director for a period of five years from that date. Members of the Company, at their extra ordinary general meeting held on 20 May 2015, appointed Rajeev Jain (DIN 01550158) as a director liable to retire by rotation and also approved his appointment as Managing Director for a period of five years w.e.f. 1 April 2015. According to the Companies Act, 2013, at least two-thirds of the total number of directors (excluding independent directors) shall be liable to retire by rotation. Rahul Bajaj (DIN 00014529), Chairman, being the longest in the office amongst the four directors liable to retire by rotation, retires from the Board by rotation this year and, being eligible, has offered his candidature for re-appointment. Necessary resolution for this purpose is proposed in the notice of the ensuing annual general meeting for the approval of the members. Brief details of Rahul Bajaj (DIN 00014529), Chairman who is seeking re-appointment has been given in the notice of annual general meeting. Sandeep Jain, Head - Business Re-engineering and Investor Relations, was appointed as Chief Financial Officer w.e.f. 4 February 2016 in place of Rajesh Viswanathan who has resigned w.e.f. 3 February 2016. Number of meetings of the Board There were nine meetings of the Board held during FY2016, as per details given in the annexed 'Corporate Governance Report'. Directors' responsibility statement In compliance of section 134(5) of the Companies Act, 2013, the directors state that: • in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; • the directors have 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 of the Company for that period; • the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; • the directors have prepared the annual accounts on a going concern basis; • the directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and • the directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and are operating effectively. Declaration by independent directors The independent directors have submitted the declaration of independence, as required under section 149(7) of the Companies Act, 2013, stating that they meet the criteria of independence as provided in section 149(6) of the Companies Act, 2013. Extract of annual return The extract of annual return as provided under section 92(3) the Companies Act, 2013, in the prescribed Form MGT-9 is annexed to this Report. Policy on directors' appointment and remuneration The policy on directors' appointment and remuneration is given in the annexed 'Corporate Governance Report'. Presentation of financial statements The financial statements of the Company for the year ended 31 March 2016 have been disclosed as per schedule III to the Companies Act, 2013. Consolidated financial statements The directors also present the audited consolidated financial statements, incorporating the duly audited financial statements of the subsidiaries, prepared in compliance with the Accounting Standard - 21. A separate statement containing the salient features of its subsidiaries in the prescribed Form AOC-1 is attached to the standalone financial statements. Statutory disclosures Summary of the key financials of the Company's subsidiaries is included in this Annual Report. A copy of audited financial statements for each of the subsidiary companies will be made available to the members of the Company, seeking such information at any point of time. The audited financial statements for each of the subsidiary companies will be kept open for inspection by any member of the Company at its registered office during business hours. The same are placed on the Company's website <https://www.bajajfinserv.in/finance/investor-> relations/annual-reports.aspx Details as required under the provisions of section 197(12) of the Companies Act, 2013 read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are placed on the Company's website <https://www.bajajfinserv.in/finance/investor-relations/>annual-reports.aspx as an annexure to the Directors' Report. A physical copy of the same will be made available to any member on request. Details as required under the provisions of section 197(12) of the Companies Act, 2013 read with rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, which form part of the Directors' Report, will be made available to any member on request, as per provisions of section 136(1) of the said Act. Directors' responsibility statement as required by section 134(5) of the Companies Act, 2013 appears in a preceding paragraph. Certificate from auditors of the Company regarding compliance of conditions of corporate governance is annexed to this Report. Pursuant to the provisions of the Companies Act, 2013 no fraud was reported by auditors of the Company to the Audit Committee during FY2016. Disclosures as prescribed by Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 and other NBFC regulations have been made in this Annual Report. A Cash Flow Statement for FY2016 is attached to the Balance Sheet. The Company has a policy on prevention of sexual harassment at workplace. There was no case of sexual harassment reported during FY2016. Significant and material orders During FY2016, no significant and material orders were passed by any regulator or court or tribunal impacting the going concern status and Company's operations in future. Particulars of loans, guarantees and investments The Company, being a non-banking finance company registered with the Reserve Bank of India and engaged in the business of giving loans, is exempt from complying with the provisions of section 186 of the Companies Act, 2013 in respect of loans and guarantees. Accordingly, the disclosures of the loans given as required under the aforesaid section have not been given in this Report. Information regarding investments covered under the provisions of section 186 of the said Act are detailed in the financial statements. Related party transactions During FY2016, the Company entered into transactions with related parties pursuant to approval of the Audit Committee. The details of such transactions were placed before the Committee for noting/review. All related party transactions which were entered into during FY2016 were on an arm's length basis, in the ordinary course of business and not material under clause 49 of the erstwhile listing agreement/Securities and Exchange Board of India (Listing Obligations and Disclosures Requirements) Regulations, 2015 (SEBI Listing Regulations, 2015) and hence did not require members' prior approval under the Companies Act, 2013 and the erstwhile listing agreement/ SEBI Listing Regulations, 2015. During FY2016 there were no related party transactions requiring disclosure under section 134 of the Companies Act, 2013. A policy on materiality of related party transactions and dealing with related party transactions is placed on the Company's website <https://www.bajajfinserv.in/finance/investor-relations/>policies-and-documents.aspx and is also included in the Annual Report. Risk management The Board of Directors has adopted a risk management policy for the Company which provides for identification, assessment and control of risks which in the opinion of the Board may threaten the existence of the Company. The Management identifies and controls risks through a properly defined framework in terms of the aforesaid policy. Corporate governance Pursuant to the Listing Regulations, a separate section titled 'Corporate Governance' has been included in this Annual Report, along with the Reports on 'Management Discussion and Analysis' and 'General Shareholder Information'. All Board members and Senior Management personnel have affirmed compliance with the code of conduct for FY2016. A declaration to this effect signed by the Managing Director of the Company is included in this Annual Report. The Managing Director and Chief Financial Officer have certified to the Board with regard to the financial statements and other matters as specified in the SEBI Listing Regulations, 2015. Business responsibility report Pursuant to the provisions of the SEBI Listing Regulations, 2015 the Company, being in the top 100 companies by market capitalisation on National Stock Exchange of India Limited as on 31 March 2015, is required to give Business Responsibility Report (BRR) in the Annual Report. As a green initiative the BRR for FY2016 has been hosted on the Company's website <https://www.bajajfinserv.in/finance/investor-relations/annual-reports.aspx>A physical copy of the BRR will be made available to members on request. Secretarial standards of ICSI Pursuant to the approval from the Ministry of Corporate Affairs, the Institute of Company Secretaries of India (ICSI) has, on 23 April 2015, notified the Secretarial Standards on Meetings of the Board of Directors (SS-1) and General Meetings (SS-2) effective from 1 July 2015. The Company is compliant with the same. Auditors Pursuant to the provisions of section 139 of the Companies Act, 2013, Dalal & Shah, Chartered Accountants, were appointed as statutory auditors of the Company at the 27th annual general meeting (AGM) of the Company for a period from the conclusion of the said AGM till the conclusion of the 30th AGM subject to ratification of their appointment by the members at every AGM held thereafter. W.e.f. 21 December 2015, the auditors' firm has been converted into a limited liability partnership having registration no. 102021W/W100110. A resolution for ratification of appointment of Dalal & Shah LLP, Chartered Accountants, as auditors and fixation of their remuneration for the year 2016-17 is proposed in the notice of the ensuing AGM for the approval of the members. The Company has received from Dalal & Shah LLP a certificate to the effect that their appointment shall be in accordance with the prescribed conditions and that the LLP is not disqualified under the Companies Act, 2013. The Audit Report does not contain any qualification, reservation or adverse remark or disclaimer. Secretarial auditor Pursuant to the provisions of section 204 of the Companies Act, 2013, the Board has reappointed Shyamprasad D. Limaye, company secretary in practice (FCS No. 1587, CP No. 572), to undertake secretarial audit of the Company. A report from the secretarial auditor is annexed to this Report. The same does not contain any qualification, reservation or adverse remark or disclaimer. Acknowledgement The Board of Directors takes the opportunity to express its sincere appreciation for the support and co-operation from its members, Reserve Bank of India and other regulators, banks, financial institutions and the trustees for debenture holders and FD holders. The Board of Directors also places on record its sincere appreciation of the commitment and hard work put in by the Management and employees of the Company and thanks them for yet another excellent year. On behalf of the Board of Directors Rahul Bajaj Chairman Pune: 24 May 2016 |