DIRECTORS' REPORT TO THE MEMBERS OF LIC HOUSING FINANCE LIMITED Your Directors are pleased to present the Twenty Sixth Annual Report together with the audited financial statements for the year ended 31st March, 2015 of LIC Housing Finance Limited ('the Company'). Dividend Considering the performance during the financial year 201415, your Directors recommend payment of dividend for the financial year ended 31st March, 2015 of Rs.5/- per equity share of face value of Rs.2/- per share i.e. @ 250 percent, as against Rs.4.50/- per equity share of face value of Rs.2/-per share for the previous year i.e. @ 225 percent. The total dividend outgo for the current year would amount to Rs.302.23 crore including Dividend Distribution Tax of Rs.49.90 crore which is 21.80 percent of PAT, as against Rs.265.58 crore including dividend distribution tax of Rs.38.48 crore, for the previous year, which was 20.16 percent of PAT. Performance Income and profit The Company earned total revenue of Rs. 10,798.66 crore, registering an increase of 15.68 percent. The percentage of administrative expenses to the housing loans, which was 0.33 percent in the previous year, has marginally increased to 0.34 percent during the year 2014-15. Profit before tax and after tax stood at Rs.2101.94 crore and Rs. 1386.19 crore respectively as against Rs. 1,825.50 crore and Rs.1,317.18 crore, respectively, for the previous year. Profit before tax increased by 15.14 percent over the previous year while profit after tax showed growth of 5.24 percent over that of the previous year. The increase of 40.80% on account of tax expenses is attributed to creation of deferred tax liability in respect of special reserve amount appropriated during the period under review has been charged to the Statement of Profit & Loss. The creation of deferred tax liability in respect of transfer to Special Reserve has been introduced during the year. Lending operations Individual loans: The main thrust continues on individual housing loans with a disbursement growth of 20.45 percent during the year. During the year, the Company sanctioned 1,52,102 individual housing loans for Rs.29,326.75 crore and disbursed 1,61,791 loans for Rs.29,255.91 crore. Housing loan to Individual i.e. retail loans constitute 92.48 percent of the total sanctions and 96.46 percent of the total disbursements for the year 2014-15 as compared to 95.24 percent and 96.12 percent respectively during the year 2013-14. The gross retail loan portfolio grew by over 19.29 percent from Rs.88,645.99 crore as on 31st March, 2014 to Rs.1,05,742.16 crore as on 31st March, 2015. The cumulative sanctions and disbursements since inception, in respect of individual housing loans are: Amount sanctioned : Rs.1,81,676.12 crore Amount disbursed : Rs. 1,68,851.77 crore More than 20,97,489 customers have been serviced by the Company up to 31st March, 2015 since inception. Project loans: The project loans sanctioned and disbursed by the Company during the year were Rs.2,386.15 crore and Rs.1,071.41 crore respectively. Corresponding figures for the previous year were Rs. 1,271 crore and Rs.981.50 crore pertaining to sanction and disbursement respectively. These loans are generally for short durations, giving better yields as compared to individual housing loans. Awards and Recognitions: During the year under review, the Company was awarded in various ways / by various institutions and some of the awards presented to the Company are listed below: 'Best Data Quality' in Housing Finance Companies by CIBIL. 'Best Housing Finance Company by BFSI Awards for second consecutive year. 'Best Housing Finance Company by IBFA and by Realty Plus Excellence. Marketing and Distribution During the year under review, efforts were taken to further strengthen the distribution network. The distribution network of the Company consists of 16 Back Offices (BO), 132 Area Offices (AO), 80 Business Centres (BC), 7 Extension Counters (EC), 1 Customer Service Point, 4 Property Service Division (PSD) where role of Property Service Division includes all activities involved in enabling a prospective home buyer select the property upto taking the possession of the same. Basically, it is one-stop-shop solution for all the advisory services. The distribution network also includes 38 offices of LIC HFL Financial Services Ltd., wholly owned subsidiary company engaged in distribution of various financial products including housing loan. The Company has representative offices in Dubai and Kuwait. Repayments During the FY 2014-15, Rs. 12,158.76 crore was received by way of schedule repayment of principal through monthly instalments as well as prepayment of principal ahead of schedule, as compared to Rs. 10,884.43 crore received last year. Non-Performing Assets and Provisions The amount of gross Non-Performing Assets (NPA) as at 31st March, 2015 was Rs.494.68 crore, which is 0.46 percent of the housing loan portfolio of the Company, as against Rs.609.00 crore i.e. 0.67 percent of the housing loan portfolio as at 31st March, 2014. The net NPA as at 31st March 2015 was Rs.234.43 crore i.e. 0.22 percent of the housing loan portfolio vis-a-vis Rs.353.58 crore i.e. 0.39 percent of the housing loan portfolio as at 31st March, 2014. The total cumulative provision towards housing loan portfolio including provision for standard assets as at 31st March, 2015-was Rs.704.25 crore as against Rs.706.81 crore in the previous year. During the year, the Company has written off Rs.29.68 crore of housing loan portfolio as against Rs.0.0039 crore during the previous year. Resource Mobilisation The Company raised funds aggregating to Rs.33,719.59 crore through Non-Convertible Debentures (NCD), term loans/Foreign Currency Non Resident (FCNR)(B) loan / Line of Credit (LoC) / Working Capital Demand Loan (WCDL) from banks, NHB refinance, commercial paper and Public Deposits. Non Convertible Debentures (NCD) During the year, the Company issued NCD amounting to Rs.24,791 crore on a private placement basis which have been listed on Wholesale Debt Segment of National Stock Exchange of India Ltd. The NCDs have been assigned highest rating of 'CRISIL AAA/Stable' by CRISIL & 'CARE AAA' by CARE. As at 31st March, 2015, NCDs amounting to Rs.70,117/- crore were outstanding. The Company has been regular in making payment of principal and interest on the NCDs. As at 31s1 March, 2015, there were no NCDs which have not been claimed by the Investors or not paid by the Company after the date on which the said NCDs became due for redemption. Hence the amount of NCD remaining unclaimed or unpaid beyond due date is Nil. Subordinate Bonds & Upper Tier II Bonds During the year, the Company has not issued any Subordinate Bonds and Upper Tier II Bonds. As at 31st March, 2015, the outstanding Subordinate Bonds and Upper Tier II Bonds stood at Rs.3,000/- crore. Considering the balance term of maturity as at 31st March, 2015, Rs.2,300/- crore of the book value of the Subordinate Bonds and Upper Tier II Bonds is considered as Tier II Capital as per the Guidelines issued by NHB for the purpose of Capital Adequacy. Term Loans, FCNR (B) loan from Banks / LOC / WCDL, Refinance from NHB The total loans / LOC outstanding from the Banks as at 31s' March, 2015 are Rs.17,454.03 crore as compared to Rs.20,241.41 crore as at 31st March, 2014. The Refinance from NHB as at 31st March, 2015 stood at Rs.3,428.93 crore as against Rs.3,384.72/- crore as at 31st March, 2014. During the year, the Company has availed Rs.765.50 crore Refinance from NHB under Rural Housing Fund, Urban Housing Fund and Refinance scheme for Women. The Company's long term loan facilities have been assigned the highest rating of 'CRISIL AAA/STABLE' and short term loan has been assigned rating of 'CRISIL A1+' signifying highest safety for timely servicing of debt obligations. Public deposits As at 31st March, 2015, the outstanding amount on account of public deposits was Rs.2,421.91 crore as against Rs. 1,193.97 crore in the previous year. During the FY 201415 amount of Rs. 1,609.94 crore is collected in the Public Deposite Scheme. The number of depositors has increased from 16,401 to 24,990. CRISIL has for the ninth consecutive year, re-affirmed a rating of "CRISIL FAAA/Stable" for the company's deposits which indicates highest degree of safety regarding timely servicing of financial obligations and carries the lowest credit risk. The support of the agents and their commitment to the Company has been vital in mobilization of deposits and making the product most preferred investment for individual households and others. 313 deposits amounting to Rs.8.95 crore which were due for repayment on or before 31st March, 2015 were not claimed by the depositors till that date. Since then, 152 depositors have claimed or renewed deposits of Rs.4.26 crore. Depositors are appropriately intimated for renewal / claim of their deposits through an authorised agency. Further, adequate follow-up is made in respect of those cases where deposits are lying unclaimed. As per the provisions of Section 125 of the Companies Act, 2013, deposits and interest thereon remaining unclaimed for a period of seven years from the date they became due for payment have to be transferred to the Investor Education and Protection Fund (IEPF) established by the Central Government, accordingly, as on date Rs.2,068 against unclaimed interest on deposits has been transferred to IEPF. Being a housing finance company registered with the National Housing Bank established under the National Housing Bank Act, 1987, the disclosures as per Rule 8(5)(v)&(vi) of the Companies (Accounts) Rules, 2014 read with section 73 and 74 of the Companies Act, 2013 are not applicable to the Company. Regulatory Compliance The Company has been following guidelines, circulars and directions issued by National Housing Bank (NHB) from time to time. Your Company has been maintaining capital adequacy as prescribed by the NHB. The capital adequacy was 15.30 percent (as against 12 percent prescribed by the NHB) as at 31st March, 2015 after considering the loan to value ratio for deciding risk weightage. The Company has adopted Know Your Customer (KYC) Guidelines, Anti Money Laundering Standards, Fair Practices Code, Model Code of Conduct for Direct Selling Agents and Guidelines for Recovery Agents engaged by the Company as prescribed by NHB from time to time. During the year, NHB has prescribed that HFCs shall provide 'Most Important Terms and Conditions' of housing loans, which the Company has implemented with the objective of ensuring a better understanding of the major terms and conditions of the loan agreed upon between the Company and its borrowers. The Company also has been following directions / guidelines / circulars issued by SEBI from time to time, applicable to a listed company. Statutory Auditors Pursuant to Sections 139, 141, 142 and other applicable provisions, if any, of the Companies Act, 2013 and the Companies (Audit and Auditors) Rules, 2014, including any statutory modification, or re-enactment thereof, Messrs Chokshi & Chokshi, LLP, Chartered Accountants, Mumbai (Registration No.:101872W) and Messrs Shah Gupta & Co., Chartered Accountants, Mumbai (Registration No.:109574W), shall hold office until the conclusion of the forthcoming Annual General Meeting (AGM) and are eligible for re-appointment. The Company has received a confirmation from them to the effect that their re-appointment, if made at the ensuing AGM would be in terms of Section 139 and 141 of the Companies Act, 2013 and Rules made there under. The Board recommends the re-appointment of Messrs Chokshi & Chokshi, LLP, Chartered Accountants, Mumbai (Registration No.:101872W) and Messrs Shah Gupta & Co., Chartered Accountants, Mumbai (Registration No.:109574W) as Joint Statutory Auditors of the Company to hold the office from the conclusion of this Twenty Sixth Annual General Meeting until the conclusion of the Twenty Seventh Annual General Meeting on a remuneration to be determined by the Board of Directors in consultation with them (plus applicable service tax), for the purpose of audit of the Company's accounts at the Corporate Office as well as at 10 Back Offices to be selected in consultation with the Joint Statutory Auditors. During the year, Messrs Chokshi & Chokshi, converted itself into a Limited Liability Partnership (LLP) under the provisions of the Limited Liability Partnership Act, 2008 and is now known as Messrs' Chokshi & Chokshi LLP, in terms of General Circular No.9/2013 dated 30th April, 2013 of the Ministry of Corporate Affairs, if a firm of CAs, being an auditor in a company under the Companies Act, 1956, is converted into an LLP, then such an LLP would be deemed to be the auditor of the said company. The Board of Directors of the Company has taken due note of this change. Corporate Governance A certificate from Mr. N. L. Bhatia, Company Secretary (Membership No.: FCS 1176) Partner, Messrs N. L. Bhatia & Associates, Practising Company Secretaries regarding compliance of the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement with Stock Exchanges is attached to the Corporate Governance Report. Your Company has been complying with the principles of good Corporate Governance over the years. The Board of Directors supports the broad principles of Corporate Governance. In addition to the basic governance issues, the Board lays strong emphasis on transparency, accountability and integrity. The report on Corporate Governance is appended as a separate section in this Annual Report. Management Discussion and Analysis Report Management Discussion and Analysis Report for the year under review, as stipulated under clause 49 of the Equity Listing Agreement with Stock Exchanges is presented in a separate section forming part of the Annual Report. Business Responsibility Report The Securities and Exchange Board of India through its circular CIR/CFD/DIL/8/2012 dated August 13th, 2012, had mandated the top 100 listed entities, based on the market capitalization on Bombay Stock Exchange Limited and National Stock Exchange of India Limited as at March 31st, 2012, to include the Business Responsibility Report as part of the Annual Report. Accordingly, Business Responsibility Report is presented in a separate section forming part of the Annual Report. Depository system For transaction of its shares in dematerialised form, the Company has entered into an agreement with Central Depository Services (India) Ltd. (CDSL) and National Securities Depository Ltd. (NSDL). The shareholders have a choice to select the Depository Participant. As at 31st March, 2015, 9,946 members of the Company continue to hold shares in physical form. As per the Securities and Exchange Board of India's (SEBI) circular, the Company's shares have to be transacted in dematerialised form and therefore, members are requested to convert their holdings to dematerialised form. Auditors' observations No adverse remark or observation has been given by the Joint Statutory Auditors in their report dated 18th April, 2015. The Company has an in-house mechanism for Audit of all its back offices by the team of in-house auditors. The Company maintains an exhaustive checklist for the purpose of Audit. The Company also appoints CA firm as Internal Auditor for audit of its Corporate Office. Systems and procedures are being upgraded from time to time to provide checks and alerts for avoiding fraud arising out of misrepresentation made by borrower/s while availing the housing loans. Outlook for 2015-16 •The initiatives taken by the Company during the financial year 2014-15 are expected to improve its operational and financial performance. During FY 2015-16, the Company proposes: •To grow business qualitatively by consolidating position and strengthening the competitiveness on service delivery. • To create brand LIC HFL as a source of trusted partner exuding consumer confidence. •Understand the inherent risks to the business and managing it effectively. •Focus on winning and retaining customers. •Pursue new skills and expand knowledge aimed at managing competition effectively. •Expand its operations by establishing new business centres. •Increase its distribution by appointing new agents and activising more agents. •Incentivising and motivating the marketing intermediaries systematically for improving productivity. •Raising funds through loans at attractive terms. •Making efforts towards reducing overall cost of funds. •Steps to improve the recovery ratio and ensuring lowest NPA level. Improving receivable management through support system. •Timely review of credit appraisal system to improve the loan asset quality. •Continuous efforts to upgrade Information Technology platform to ensure prompt and effective service to the clientele. •Swift, appropriate and competitive pricing of its existing loan schemes to attract new customers. The management perspective about future of the Company In view of the huge shortage in urban housing units in the country, the Union government has been providing continued support to make the sector attractive and giving it due recognition. The agenda of housing for all is a key component of the government's strategy for making Indian cities inclusive and productive. While rapid urbanization and growing cities provide various opportunities, there is fallout in terms of proliferation of slums, high prices of land and building materials which render houses unaffordable for the segment at the bottom of the pyramid. The technical committee constituted by the Ministry of Housing and Urban Poverty Alleviation has estimated housing shortage at 18.78 million units during the 12th Five Year Plan period of which over 95 percent is estimated in the Economically Weaker Sections (EWS) and Low Income Group (LIG) categories. With increasing urban population it is estimated that it would generate unprecedented demand for quality real estate and infrastructure. Approximately 123 million of urban population by 2020 is likely to require professional assistance for construction of houses. This would lead to a whopping 95 billion square feet of potential demand of real estate space across residential, retail, commercial, industrial and civil amenities over 2010-20. This would mean an average demand of 8.7 billion square feet which potentially needs to be built every year. Compliance under Companies Act, 2013 Pursuant to section 134 of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014, the Company complied with the compliance requirements and the detail of compliances under Companies Act, 2013 are enumerated below: Extract of Annual Return: Pursuant to Section 92(3) of the Companies Act, 2013 and Rule 12(1) of the Companies (Management and Administration) Rules, 2014, an extract of Annual Return in Form MGT-9 as on 31st March, 2015 is attached as Annexure 1 to this Report. Board Meetings held during the year: During the year under review, 6 Board meetings were held. Detailed information on the meetings of the Board are included in the Report on Corporate Governance which forms part of this Annual Report. Directors' Responsibility Statement: In accordance with the provisions of Section 134(3)(c) of the Companies Act, 2013, and based on the information provided by the management, your Directors state that: (a) in the preparation of the annual accounts, the applicable accounting standards had been followed and there are no material departures; (b) 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; (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; and (e) the directors have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. Note on internal financial control is attached as Annexure 2 to this Report. (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. Statement on Declaration from Independent Directors: A declaration under section 149(6) & (7) of the Companies Act, 2013 has been obtained from each of the Independent Director. Company's policy on directors' appointment and remuneration including criteria: The Nomination and Remuneration Committee at its meeting held on 25th July, 2014 and the Board of Directors at its meeting held on 16lh March, 2015 respectively, had laid down Criteria for determining Director Qualification, positive attributes and independence of a Director, remuneration of directors, key managerial personnel and also criteria for evaluation of directors, chairperson, non-executive directors and Board as a whole and also the evaluation process of the same. The performance of the members of the Board, and the Board as a whole were evaluated at the meeting of Independent Directors held on 16th March, 2015. In terms of the provisions of section 149 of the Companies Act, 2013 and clause 49 of the Listing Agreement, a company shall have atleast one Woman Director on the Board of the Company. The Company has Ms. Savita Singh as Director on the Board since 25th May, 2012 and Ms. Sunita Sharma as Managing Director & CEO since 5th November, 2013. Qualification, reservation or adverse remark or disclaimer made by Joint Statutory Auditors and Secretarial Auditor: No adverse remark or reservation or qualification has been made by Joint Statutory Auditors or Secretarial Auditor. Particulars of loans, guarantees or investments under Section 186: Pursuant to Section 186(11) of the Companies Act, 2013 loans made, guarantee given or security provided by a housing finance company in the ordinary course of its business are exempted from disclosure in the Annual Report. Particulars of contracts or arrangements with related parties referred to Section in 188(1) read with Rule 8(2) of Companies (Accounts) Rules, 2014: All Related Party Transaction that were entered during the financial year were in the ordinary course of the business of the Company and were on arm's length basis. There were no materially significant related party transaction entered by the Company with Promoters, Directors, key managerial personnel or other persons which may have a potential conflict with the interest of the Company. Considering the nature of the industry in which the Company operates, transactions with related parties of the Company are in the ordinary course of business which are also on arm's length basis. All such Related Party Transactions are placed before the Audit committee for approval, wherever applicable. Prior approval is also obtained from Audit Committee for the Related Party Transactions which are of repetitive nature as well as for ordinary course of business. The Related Party Transactions Policy and Procedures as reviewed by Audit Committee and approved by Board of Directors is uploaded on the website of the Company and the link for the same is (<http://www.lichousing.com/policies_codes/Policy_Dete_> Mate_Subd.php). Form AOC-2 is annexed as Annexure 3 to this report. State of the company's affairs: The year 2014-15 was a significant year in Company's lifecycle. The Company earned total revenue of Rs. 10,798.65 crore, registering an increase of 15.68 percent. The percentage of administrative expenses to the housing loans, which was 0.33 percent in the previous year, has marginally increased to 0.34 percent during the year 2014-15. Profit before tax and after tax stood at Rs.2,101.94 crore and Rs. 1,386.19 crore respectively as against Rs. 1,825.50 crore and Rs.1,317.18 crore, respectively, for the previous year. Profit before tax increased by 15.14 percent over the previous year while profit after tax showed growth of 5.24 percent over that of the previous year. The increase of 40.80 percent on account of tax expenses is attributed to creation of deferred tax liability in respect of Special Reserve amount appropriated during the period under review has been charged to the Statement of Profit & Loss. The creation of deferred tax liability in respect of transfer to Special Reserve has been introduced during the year. Amounts, if any which it proposes to carry to any reserves: The Company has transferred Rs.385 crore to Special Reserve and Statutory reserve u/s 29C of NHB Act and an amount of Rs.300 crore to General Reserve. Amount, if any, which it recommends should be paid by way of dividend: Rs.252.33 crore is proposed to be paid by way of dividend to shareholders of the Company i.e. Rs.5/- per equity share of face value of Rs.2/- per share. Material changes and commitments, if any, affecting the financial position of the company: There are no material changes and commitments affecting the financial position of the Company which has occurred between the end of the financial year of the Company i.e. March 31, 2015 and the date of the Directors' Report i.e. 30th June, 2015. Conservation of energy, technology absorption, foreign exchange earnings and outgo: (A) Conservation of energy - i) The steps taken or impact on conservation of energy- The Company has replaced models of computers, printers, and other equipment which were consuming between 50 to 90 percent more energy than energy-efficient models. This has ensured reduction in energy consumption and resultant saving in costs. Electronics such as computers and copy machines are plugged out at the end of day or after office hours in order to save energy as mere turning off or shutting down does not save energy completely. Air conditioning equipment is cleaned and serviced on routine basis thereby saving energy and costs and giving required cooling. The office has LED lights and after office hours, only the required lights and air conditioning is used thereby saving energy and minimizing energy wastage. ii) The steps taken by the Company for utilizing alternate sources of energy- The Company is in the process of exploring use of alternate source of energy. iii) The capital investment on energy conservation equipments- None (B) Technology absorption - i) The efforts made towards technology absorption -Not applicable. ii) The benefits derived like product improvement, cost reduction, product development or import substitution - Not applicable. iii) In case of imported technology (imported during the last three years reckoned from the beginning of financial year)- Not applicable. a) The details of technology imported - Not applicable. b) The year of import - Not applicable. c) Whether the technology has been fully absorbed - Not applicable. d) If not fully absorbed areas where absorption has not taken place and the reason thereof - Not applicable. (iv) The expenditure incurred on Research and Development - Not applicable. (C) Foreign Exchange Earnings and Outgo- The foreign exchange earned in terms of actual inflows during the year and the foreign outgo during the year in terms of actual outflows. During the year ended March 31st, 2015, the Company earned Rs. 17.30 lakh and spent Rs. 102.38 lakh in foreign currency. This does not include foreign currency cash flows in derivatives and foreign currency exchange transactions. Risk Management Policy for the Company: The Board of the Company has formed a Risk Management Committee to frame, implement, monitor, review risk management policy; review of the current status on the outer limits prescribed in the Risk Management policy and report to the Board; review the matters on risk management. Risks faced by the Company are identified and assessed. For each of the risks identified, corresponding controls are assessed and policies and procedure are in place for monitoring, mitigating and reporting risk on a periodic basis. The details of risk is provided in the Management Discussion and Analysis Report. In the opinion of the Board, none of the risks faced by the Company threaten its existence. Corporate Social Responsibility (CSR) Policy: In compliance with Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, the Company has established Corporate Social Responsibility Committee and statutory disclosures with respect to the CSR Committee and an Annual Report on CSR activities is annexed as Annexure 4 to this report. Annual evaluation made by the Board of its own performance: The Nomination and Remuneration Committee at its meeting held on 25th July, 2014 and the Board of Directors at its meeting held on 16th March, 2015 respectively, had laid down Criteria for evaluation of directors, chairperson, nonexecutive directors, Board level committee and Board as a whole and also the evaluation process of the same. The Board of Directors had carried out an annual evaluation of its own performance, Board committees and individual directors pursuant to the provisions of the Act and the corporate governance requirements as prescribed by Securities and Exchange Board of India (SEBI) under clause 49 of the Listing Agreement at the meeting of Independent Directors held on 16th March, 2015. The performance of the Board was evaluated by the Board after seeking inputs from all the directors on the basis of criteria such as the Board composition and structure, effectiveness of board process, information and functioning, process of disclosure and communication, access to timely, accurate and relevant information etc. The performance of the committee was evaluated by the Board after seeking inputs from the committee members on the basis of criteria such as the composition of committee, effectiveness of committee meeting, functioning, 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, presented views convincingly, resolute in holding views etc. In addition, the Chairman was also evaluated on the key aspects of his role. In a separate meeting of Independent Directors, performance of non-independent directors, performance of the board as a whole and performance of Chairman was evaluated, taking into account the views of executive directors and non-executive directors. The same was discussed in the Board meeting that followed the meeting of the independent directors, at which the performance of the Board, its committees and individual directors was also discussed. Report on the performance and financial position of each of the subsidiaries, associates and joint venture companies included in the consolidated financial statement: Pursuant to Section 129 of the Companies Act, 2013, the Company has prepared a consolidated financial statement of the Company and also of its subsidiaries, in the same form and manner as that of the Company which shall be laid before the ensuing Twenty Sixth Annual General Meeting of the Company alongwith the laying of the Company's Financial Statement under sub-section (2) of Section 129 i.e. Standalone Financial Statement of the Company. Further, pursuant to the provisions of Accounting Standard ('AS') 21, Consolidated Financial Statements notified under Section 133 of the Companies Act, 2013 read together with Rule 7 of the Companies (Accounts) Rules, 2014, issued by the Ministry of Corporate Affairs, the Consolidated Financial Statements of the Company alongwith its subsidiaries for the year ended 31st March, 2015 form part of this Annual Report. There has been no change in the nature of business of the Company for the year under review. Directors: The Company has eleven Directors consisting of seven Independent Directors, three Non-Executive Directors including Chairman; and Managing Director & CEO as Executive Director as on the date of adoption of this report. Appointments / Resignations of Directors: Dr. Dharmendra Bhandari was appointed as Additional Director of the Company by the Board with effect from 19th August, 2014. As required under Section 160 of the Companies Act, 2013, a Notice has been received from a member proposing the name of Dr. Dharmendra Bhandari for the office of a Director. Dr. Dharmendra Bhandari has submitted a declaration under Section 149(7) of the Companies Act, 2013 confirming that he meets the criteria prescribed for Independent Director under Section 149(6) of the said Act. In the opinion of the Board, Dr. Dharmendra Bhandari fulfils the conditions specified in the Act, for such appointment. The proposal for appointment of Dr. Dharmendra Bhandari as Independent Director is being placed before the shareholders for approval, the relevant details are forming part of the Notice of the AGM. Shri Debabrata Sarkar was appointed as Additional Director of the Company by the Board with effect from 30th June, 2015. As required under Sections 160 of the Companies Act, 2013, a Notice has been received from a member proposing the name of Shri Debabrata Sarkar for the office of a Director. Shri Debabrata Sarkar has submitted a declaration under Section 149(7) of the Companies Act, 2013 confirming that he meets the criteria prescribed for Independent Director under Section 149(6) of the said Act. In the opinion of the Board, Shri Debabrata Sarkar fulfils the conditions specified in the Act, for such appointment. The proposal for appointment of Shri Debabrata Sarkar as Independent Director is being placed before the shareholders for approval, the relevant details are forming part of the Notice of the AGM. Shri V. K. Kukreja was appointed as Additional Director of the Company by the Board with effect from 30th June, 2015. As required under Section 160 of the Companies Act, 2013, a Notice has been received from a member proposing the name of Shri V. K. Kukreja for the office of a Director. Shri V. K. Kukreja has submitted a declaration under Section 149(7) of the Companies Act, 2013 confirming that he meets the criteria prescribed for Independent Director under Section 149(6) of the said Act. In the opinion of the Board, Shri V. K. Kukreja fulfils the conditions specified in the Act, for such appointment. The proposal for appointment of Shri V. K. Kukreja as an Independent Director is being placed before the shareholders for approval, the relevant details are forming part of the Notice of the AGM. Taking into account the invaluable contribution, suggestions, advice given by Dr. B. N. Shukla during his tenure in the various meetings of the Board / Committees held, the Board extended the term of office of Dr. B. N. Shukla, Non-Executive Independent Director by a period of one year beyond the total term of office of nine years. All the Directors of the Company have confirmed that they are not disqualified from being appointed as directors in terms of Section 164(2) of the Companies Act, 2013. Shri S. Ravi and Shri K. Narasimha Murthy have ceased to be directors of the Company on account of completion of extended term of one year of office of Director. Director Retiring by Rotation: Shri S. B. Mainak, Director, retires by rotation at the ensuing Annual General Meeting and is eligible for re-appointment. Appointment / Resignation of the Key Managerial Personnel: Ms. Sunita Sharma, Managing Director & CEO, Mr. Nitin K. Jage, General Manager & Company Secretary and Mr. P. Narayanan, CFO are the Key Managerial Personnel as per the provisions of the Companies Act, 2013 of which Managing Director & CEO and General Manager & Company Secretary was already in office before the commencement of the Companies Act, 2013 and their appointment as Key Managerial Personnel were formalised. Further, Mr. N. K. Mittal, who was CFO of the Company till 27th November, 2014 was also Key Managerial Personnel as per the provisions of the Companies Act, 2013 and were already in office before the commencement of the Companies Act, 2013. Consequent upon his transfer to LIC of India, he tendered his resignation as CFO and in his place Mr. P. Narayanan was appointed as CFO with effect from 28th November, 2014. Committees of the Board The Company has various committees which have been established as a part of the best corporate' governance practices and are in compliance with the requirements of the relevant provisions of applicable laws and statutes. The Company has following Committees of the Board: • Audit Committee • Executive Committee • Stakeholders Relationship Committee • Debenture Allotment Committee • Nomination and Remuneration Committee • Risk Management Committee • Corporate Social Responsibility Committee • HR Committee There has not been any instances during the year when recommendations of Audit Committee were not accepted by the Board. The details with respect to the compositions, powers, roles, terms of reference etc. of relevant committees are given in detail in the Report on Corporate Governance which forms part of this Annual Report. Subsidiaries and group companies As on 31st March, 2015, the Company has four Subsidiaries namely, LICHFL Care Homes Limited, LICHFL Asset Management Company Limited, LICHFL Trustee Company Private Limited and LICHFL Financial Services Limited. The Consolidated financial statements incorporating the results of the Company's all subsidiaries for the year ended 31st March, 2015, are attached along with the statement pursuant to Section 129 of the Companies Act, 2013, with respect to the said subsidiaries. Brief write up / performance and financial position of each of the subsidiaries are as under: 1. LICHFL Care Homes Limited: LICHFL Care Homes Limited, a wholly owned subsidiary of LIC Housing Finance Limited, was incorporated on 11th September, 2001 with an authorised capital of Rs.25 crore. The basic purpose of promoting the Company was to establish and operate assisted community living centers for the senior citizens. The Company had a brief turnaround in the financial year 2011 -12 making a profit of Rs.241.71 lakh. Though for fiscal 2013-14, there was a loss of Rs.276.43 lakh, the Company has posted profit of Rs.583.22 lakh for the financial year 2014 -15. The project in Bangalore Phase II has been completed and handing over of the keys was done on 12th August, 2013. With life expectancy going up and number of elderly citizens rising year after year, it is expected that demand for care-homes would also increase. As a result, the Company is set on a growth trajectory keeping LIC & LIC HFLs' vision for fulfillment of Corporate Social Responsibility as the main focus. 2. LICHFL Asset Management Company Limited LICHFL Asset Management Company Limited was incorporated on 14th February, 2008 for undertaking the business of managing, advising, administering venture/ mutual funds, unit trusts, investment trusts set up, formed or established in India or abroad and to act as financial and investment advisor. The Company has been appointed as Investment Manager to raise and manage the maiden Fund LICHFL Urban Development Fund. The Company has successfully raised total amount of Rs.529.35 crore to LICHFL Urban Development Fund through Banks, Financial Institutions, Corporates and HNIs as against the targeted size of Rs.500 crore. 30th March, 2013 was announced as Final Closure Date of the Fund. Fund with a focus on Real Estate considers investment in Portfolio Companies engaged in development & acquisition of housing and related infrastructure, industrial and IT Parks, SEZ, Warehouses, Schools, Hospitals. Seven Investment deals have been tied up so far with Portfolio Companies developing residential projects across Pune, Bangalore and Chennai. During the year, the Company has earned a Net profit of Rs.5.66 crore compared to Rs.6.10 crore that of previous year. 3. LICHFL TRUSTEE Company Private Limited LICHFL Trustee Company Private Limited was incorporated on 5th March, 2008 for undertaking the business of trusteeship. In the year 2010 the Company has registered LICHFL Urban Development Fund with SEBI as Venture Capital Fund (VCF) under the SEBI (Venture Capital Funds) Regulations, 1996. The Fund launched its maiden Scheme LICHFL Urban Development Fund (Fund) and 30th March, 2013 was declared as Final Closure Date of the Fund after successfully garnering fund raising of Rs.529.35 crore as against the target of Rs.500 crore. LICHFL Asset Management Company Ltd is the Investment Manager for the fund. The Fund has closed seven investment deals upto 31st March, 2015. 4. LICHFL Financial Services Limited LICHFL Financial Services Limited, a wholly owned subsidiary of LIC Housing Finance Limited was incorporated on 31st October 2007, for undertaking non fund based activities like marketing of housing loans, insurance products (life insurance and general insurance), credit cards, mutual funds, fixed deposits etc. It has become operational in March 2009 and at present has got 38 offices all over the country spread over 10 states. "SARVESHAM POORNAM BHAVATU" - the vision of the company is to provide complete financial solutions to Customers. Towards this, the company began distribution of Life Insurance products of LIC of India, Housing Loans of LIC Housing Finance Limited, Mutual Funds of all fund houses, General Insurance of United India Insurance Company Limited, Credit Cards of LIC Cards Services Limited and Fixed Deposits of LIC Housing Finance Limited. More business verticals will be added depending on market opportunities and customer needs. The Company is a Corporate Agent for LIC of India and earned revenue of Rs.44.50 lakh from it. As a Corporate Agent for LICHFL for the Home Loan products, it earned revenue of Rs.600.88 lakhs from it. The revenue from General Insurance Business was Rs.15.61 lakh. The retail income from Mutual Funds, Public Deposits, Credit cards and NPS was Rs. 18.25 lakh. The company provides complete financial solution to secure not only the present but also the future of the customer and his family. In this endeavour the marketing officials assist at every step - from financial planning to manage every aspect of right investment, both for the short term and for longer terms. The Company has earned a Profit after Tax of Rs.2.50 crore for the financial year 2014-15 and recommended dividend @ 10 percent for FY 2014-15, for the fifth straight year. The Company during the year under review consolidated its' operations in 38 locations across the country. The systematic approach alongwith the new initiatives taken during the earlier years are expected to drive the revenues in a positive direction and improve the operational and financial performance. The Company has plans to expand on a selective basis and concentrate on strengthening the strong areas in the area of distribution of Home Loans and Life Insurance. The Company has started to make an impact in certain locations in the generation of revenue from the Home Loans. The Company will also focus on expanding the client base in the other verticals. The Company would evaluate the right opportunities for growth, profitability and value addition to its shareholders. Name/s of Company/ies which have ceased / become subsidiary/joint venture/associate: None As on 31st March, 2015, the Company has one associate company, namely LIC Nomura Mutual Fund Asset Management Company Limited. The Annual Report which consists of the financial statements of the Company on standalone as well as consolidated financial statements of the group for the year ended 31st March, 2015 has been sent to all the members of the Company. It does not contain Annual Reports of Company's subsidiaries. The Company will make available Annual Report of all subsidiaries upon request by any member of the Company. These Annual Reports will also be available on Company's website viz www.lichousina.com No significant and material orders were passed by the regulators or courts or tribunals impacting the going concern status and Company's operations in future. Internal Financial Control Systems and their Adequacy: The Company had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. Note on internal financial control as Annexure 2 is attached to this report. Vigil Mechanism / Whistle Blower Policy: The Company has a Whistle Blower Policy in place where whistle blowers can raise concerns relating to reportable matters as defined in the policy. The mechanism adopted by the Company encourages the whistle blower to report genuine concerns or grievances and provides for adequate safeguards against victimisation of whistle blower who avails of such mechanism and also provides for direct access to the Chairman of the Audit Committee. Employee stock option: No stock options were issued to the Directors or any employees of the company. Employee Remuneration: Disclosure pertaining to remuneration and other details as required under 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 given below: c. The percentage increase in the median remuneration of employees in the financial year : 14.43 percent d. The number of permanent employees on the rolls of the Company: 1588 e. The explanation on the relationship between average increase in remuneration and Company performance: The Company's profit before tax has increased by 15.14 percent during the year. f. Comparison of the remuneration of the key managerial personnel against the performance of the Company: 0.055% of the net profit for the year. i. Average percentile increase already made in the salaries of employees other than managerial personnel in the 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: Increase in managerial remuneration for the year was 3.17%. The average annual increase in the salaries of the employees other than managerial personnel during the year was 14.40% on account of new recruitment and promotion. k. The key parameters for any variable component of remuneration availed by the directors: The annual performance review based on the key result area, profitability of the Company. I. 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 year: None. m. Affirmation that remuneration is as per the Remuneration policy of the Company: 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. Secretarial Auditor and Secretarial Audit Report: Pursuant to section 204 of the Companies Act, 2013, the Company had appointed P S Gupchup, Practicing Company Secretary as its Secretarial Auditor to conduct the secretarial audit of the Company for the F.Y. 2014-15. The Company provided all assistance and facilities to the Secretarial Auditor for conducting their audit. Report of the Secretarial Auditor for the F.Y. 2014-15 in Form MR-3 is annexed to this report as Annexure 6. No significant and material orders were passed by the regulators or courts or tribunals impacting the going concern status and Company's operations in future. Number of cases filed, if any, and their disposal under section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013: The Company has Zero tolerance towards any action on the part of any executive / staff which may fall under the ambit of 'Sexual Harassment' at workplace, and is fully committed to uphold and maintain the dignity of every women executive / staff working in the company. Human resources The Company aims to align HR practices with business goals, motivate people for higher performance and build a competitive working environment. Productive high performing employees are vital to the Company's success. The Board values and appreciates the contribution and commitment of the employees towards performance of your Company during the year. To create the leadership bench and for sustainable competitive advantage, the company inducted / promoted employees during the year. In pursuance of the Company's commitment to develop and retain the best available talent, the Company had organised various training programmes for upgrading skill and knowledge of its employees in different operational areas. Apart from fixed salaries and perquisites, the Company also has in place performance-linked incentives which reward outstanding performers who meet certain performance targets. It has been sponsoring its employees for training programmes / seminars / conferences organised by reputed professional institutions. Employee relations remained cordial and the work atmosphere remained congenial during the year. Acknowledgments The Directors place on record their appreciation for the advice, guidance and support given by Life Insurance Corporation of India, National Housing Bank and all the bankers of the Company. The Directors also place on record their sincere thanks to the Company's clientele, lenders and members for their patronage. The Directors express their appreciation for the dedicated services of the employees and their contribution to the growth of the Company. For and on behalf of the Board Chairman Place: Mumbai Date: 30th June, 2015 |