BOARD’S REPORT Dear Members, 1.Your Directors have pleasure in presenting their 22nd Board Report on the Company’s business and operations, together with audited financial statements and accounts for the financial year ended 31st March, 2016. 2. DIVIDEND During the FY 2015 - 2016, the Company paid an interim dividend of Rs. 5.50/- per equity share (i.e. 55% of the face value) amounting to a total interim dividend of Rs.685.99 lakhs. This has resulted in an additional cash outflow on account of Dividend Distribution Tax of Rs. 139.66 lakhs. Your Directors recommended to ratify this interim dividend as the final dividend for the FY 2015 - 2016. 3. RESERVES Out of the profits generated by the Company, your Board proposes to make the following allocations to the various Reserves: Note: Previous year figures have been reworked, re-grouped, re-arranged and re-classified to conform to the current year presentation. 4. RESOURCE MOBILISATION a) Share Capital The paid up share capital of the Company is Rs. 12 47.26 lakhs. The Company had not issued any equity shares either with or without differential rights during the FY 2015 - 2016 and hence, the disclosure requirements under Section 43 and Rule 4 (4) of the Companies (Share Capital and Debentures) Rules, 2014, is not applicable. b) Debentures The Company had not issued any debentures during the FY 2015 - 2016. The residual portion of secured redeemable non-convertible debentures under private placement during earlier years along with interest accrued is Rs. 494.67 lakhs as on 31st March, 2016. The debentures issued are secured by way of floating charge on the current assets of the Company. Trustees for Debenture Holders The Company has appointed Mr. A Gopalakrishnan, Chartered Accountant, M/s. K. Venkatachalam Aiyer & Co., Chartered Accountants, Bldg. 41/3647B, Providence Road, Kochi, Kerala - 682 018, to act as trustees for ensuring that the interests of debenture holders are protected. c) Public Deposits Your Company is a Non - Banking Financial Company (NBFC), registered with Reserve Bank of India (RBI) having Category A (Deposit Taking) License. The Company started accepting public deposits during FY 2013 - 2014. The outstanding amount of public deposits as on 31st March, 2016, received by the Company including interest accrued at that date is Rs.114 68.18 lakhs. As on 31st March, 2016, there are 320 numbers of accounts of public deposits amounting to Rs.447.87 lakhs (including interest accrued) which have become due for payment but have not been claimed by the depositors. The public deposits of the Company are rated as “FA Stable” by CRISIL. Chapter V of the Companies Act, 2013, relating to acceptance of deposits by Companies, is not applicable to the Company since it is an NBFC registered with RBI. Communication to Deposit Holders The Company has the practice of sending communication by registered post, two months in advance to the deposit holders whose accounts are about to mature. If the deposit holders are not responding to the communication, Company will contact the depositor in person instructing them to surrender the fixed deposit certificate and claim the amount. In case, where the depositors are not traceable due to change in address/phone numbers, another regular communication is sent to the deposit holder and other modes to contact the deposit holders are also initiated till the deposits are repaid. Trustees for Deposit Holders Subject to the provisions of RBI Guidelines for trustees of deposit holders of the NBFC, your Company appointed M/s. IDBI Trusteeship Services Limited, as trustees for protecting the interests of deposit holders. As per the Master Circular - Miscellaneous Instruction to all NBFCs dated 01st July, 2014, NBFCs accepting/ holding public deposits were directed to create a floating charge on the Statutory Liquid Assets invested in terms of Section 45 - 1B of the RBI Act, 1934, in favour of the depositors. Your Company has created a floating charge on the Statutory Liquid Assets in favour of M/s. IDBI Trusteeship Services Limited, as trustee on behalf of the depositors as required under Section 45 -1B of the RBI Act, 1934. d) Subordinated Debts The Company had in the current year raised money through issue of subordinated debts. As of 31st March, 2016, the total amount of outstanding subordinated debts, including accrued interest was Rs. 17 75.22 lakhs as against Rs. 4 46.70 lakhs in the previous year. The subordinated debts and public deposits consists of 14.3% of our total funding. e) Bank Finance The Company raised funds for its working capital resources mainly from banks. The total amount of working capital loans and cash credit outstanding being Rs. 7 36 64.75 lakhs as on 31st March, 2016 against Rs.5 80 61.96 lakhs as on 31st March, 2015. 5. DIRECTORS The composition of the Board is as per the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) (LODR) Regulations, 2015. All the Directors are having vast knowledge and experience in their relevant fields and the Company had benefitted immensely by their presence in the Board. Mr. Thomas Muthoot, Director (DIN: 00082099) retires at the ensuing Annual General Meeting (AGM) and being eligible, offers himself for re-appointment. The Board of Directors recommends the re-appointment of Mr. Thomas Muthoot as Director of the Company. The detailed profile of Mr. Thomas Muthoot, recommended for re-appointment is mentioned in the Notice for the AGM. The term of Mr. Thomas George Muthoot (DIN: 00011552) as Managing Director of the Company expires on 11th July, 2016. Your Directors recommend his re-appointment as Managing Director for the further term of 5 years from 12th July, 2016, subject to the terms and conditions mentioned in the notice to the forthcoming Annual General Meeting of the Company a) Changes in Directors and Key Managerial Personnel (KMP) during the year 2015 - 2016 During the year under review, there are no changes in the composition of the Board of Directors nor the KMPs of your Company. The following persons are the KMPs of the Company as recorded by the Board: Mr. Thomas George Muthoot : Managing Director Mr. R. Manomohanan : Chief Executive Officer Mr. Vinodkumar M. Panicker : Chief Finance Officer Mr. Syam Kumar R. : Company Secretary & Head Governance b) Woman Director In term of the provisions of Section 149 of the Companies Act, 2013 and Regulation 17 (1) (a) of the SEBI (LODR) Regulations, 2015, the Company shall have at least one Woman Director on the Board. Your Company has Ms. Radha Unni, as Woman Director on the Board of the Company. c) Declaration by Independent Director(s) and re-appointment, if any The Company has three Independent Directors on the Board. On 01st April, 2015, the Company has received declaration from each Independent Director of the Company under Section 149 (7) of the Companies Act, 2013 that, they meet the criteria of independence as laid down in Section 149 (6) of the Companies Act, 2013, and subsequently the same was placed at the Board Meeting held on 25th May, 2015. A declaration by Managing Director confirming the receipt of this declaration from Independent Directors is annexed to this report as Annexure 1. During the FY 2015 - 2016, the Company has conducted a refresher/devolvement programme for its Independent Directors. The presentation made in this regard is posted on the website of the Company and the web link is: http://www.muthootcap.com/pdf/DetailsofFamiliarisation_Refresher_programme.pdf d) Policy on Board Diversity The Policy on Board Diversity adopted by the Company includes the following: (i) Diversity is ensured through consideration of a number of factors, including but not limited to skills, regional and industry experience, background and other qualities. (ii) The Company shall also take into account factors based on its own business model and specific needs from time to time. (iii) The Nomination & Remuneration Committee shall lead the process for Board appointment and for identifying and nominating, for approval of the Board, candidates for appointment to the Board. (iv) The benefits of experience/knowledge in the areas relevant to the Company and diversity continue to influence succession planning and continue to be the key criteria for the search and nomination of Directors to the Board. (v) Board appointments are based on merit and candidates will be considered against objective criteria, having due regard for the benefits of diversity on the Board, including gender. e) Formal Annual Evaluation of Board and its Committees Pursuant to Section 178 (3) of the Companies Act, 2013, the Nomination & Remuneration Committee of the Company has formulated the criteria for determining qualifications, positive attributes and independence of Director and recommended to the Board a policy on remuneration of the Directors, Key Managerial Personnel and other employees. The Policy also includes the norms for evaluation of the Board, Chairman, Managing Director, various Committees of the Board and individual Directors. Based on the recommendation of the Committee, the said Policy on Nomination & Remuneration was approved and adopted by the Board. The Board has carried out an annual evaluation of its own performance, its Committees and Independent Directors, excluding the Director being evaluated. A structured questionnaire was prepared after seeking inputs from all the Directors on the basis of the criteria such as the Board composition and structure, Board processes and procedures, Board effectiveness etc. The Board and Nomination & Remuneration Committee reviewed the performance of the individual Directors inter alia, on the basis of understanding and knowledge of the market in which the Company is operating, ability to appreciate the working of the Company and the challenges it faces, attendance of meetings, extend of participation and involvement in the meetings, ability to convey his views and flexibility to work with others. The performance of the committees was evaluated by the Board based on composition of the Committees, effectiveness of the Committee meetings with respect to the terms of reference and conduct of meetings and procedures followed. Separate meeting of Independent Directors was conducted during the FY 2015 - 2016, to review the performance of the Board as a whole, performance of Non-Independent Directors, performance of the Chairman and assess the quality, quantity and timeliness of flow of information from the Management to the Board. All Directors participated in the evaluation survey and reviews was carried out. The result of evaluation was discussed in the Independent Directors meeting, respective Committee meetings and in the Board Meeting held on 19th April, 2016. The Board noted the comments/suggestions of Independent Directors and Chairmen of respective Committees and also discussed various initiatives to further strengthen Board effectiveness. f) Managerial Remuneration The Company’s policy on Director’s appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a Director and other matters provided under Section 178 (3) of the Companies Act, 2013, enclosed herewith as Annexure 2. g) Meetings of the Board During the FY 2015 - 2016, your Board of Directors met five times on the following dates:- 25.05.2015 10.08.2015 11.11.2015 15.01.2016 11.03.2016 h) Audit Committee As on 31st March, 2016, the Audit Committee consists of four Non-Executive Directors, of which three are Non- Executive Independent Directors. All the Members of the Committee possess accounting or related financial management expertise. The constitution and terms of reference of the Committee are in accordance with the SEBI (LODR) Regulations, 2015, Companies Act, 2013 and RBI Regulations, which are elaborated in the Corporate Governance Report forming part of this report. i) Other Committees of the Board The details of the other Committees of the Board, their composition, terms of reference and the activities during the year are elaborated in the Corporate Governance Report forming part of this Report. 6. SUBSIDIARIES/JOINT VENTURE/ASSOCIATE COMPANY The Company has no subsidiary/joint venture/associate company and hence consolidation and applicable provision under the Companies Act, 2013 and Rules made thereunder are not applicable to the Company. 7. CHANGE IN THE NATURE OF BUSINESS, IF ANY During the year under review, there was no change in the nature of business of the Company. The Company is mainly into the business of providing two wheeler loans. The Company had disbursed business/corporate loans to the extent of Rs. 1 01 43.12 lakhs and as on 31st March 2016, the outstanding amount is Rs. 72 13.85 lakhs. The Company had, in the previous year, entered into pool buyout arrangement of loan receivables amounting to Rs. 46 50.86 lakhs (after deducting 5% or 10% for MRR requirement). The aggregate amount outstanding under loan buyout as on 31st March, 2016 was Rs. 32 81.68 lakhs. The sourcing of the business for the Company viz. two wheeler financing takes place at the dealer points for two wheelers. The Company has already activated 1800 dealers. It plans to activate 400 - 500 dealerships/sub dealerships additionally in the FY 2016 - 2017. The Company proposes to look at other means of funding like NCDs/CPs, apart from the existing means of financing by way of bank loans, public deposits, subordinated debts etc. 8. MATERIAL CHANGES AND COMMITMENTS, IF ANY, AFFECTING THE FINANCIAL POSITION OF THE COMPANY WHICH HAVE OCCURRED BETWEEN THE END OF THE FINANCIAL YEAR TO WHICH THE FINANCIAL STATEMENTS RELATE AND THE DATE OF THE REPORT No material changes or events have occurred since the date of the Balance Sheet that could have any effect on the financial position of the Company. 9. CAPITAL ADEQUACY RATIO Your Company’s total Capital Adequacy Ratio (CAR) as on 31st March, 2016 stood at 15.40% of the aggregate risk weighted assets on the Balance Sheet and risk adjusted value of the off - Balance Sheet items, which is above the regulatory minimum of 15%. The CAR as on 31st March, 2015, stood at 15.97%. 10. CREDIT RATING The Credit Rating enjoyed by the Company as on 31st March, 2016, is as given below: 11. SIGNIFICANT & MATERIAL ORDERS PASSED BY THE REGULATORS Your Directors confirm that there were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Company’s operations in future. 12. DETAILS IN RESPECT OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS The Company has in place adequate internal financial controls with reference to the financial statements, which is evaluated by the Audit Committee as per Schedule II Part C of the SEBI (LODR) Regulations, 2015. During the year under review, there were no reportable material weaknesses in the systems or operation. 13. CORPORATE SOCIAL RESPONSIBILITY Your Company has always responded in a reasonable manner to the growing needs of the society benefiting the deserving population. A number of enriching and enlivening activities that contribute to the community in the areas of health, education, environment and livelihood have been taken up. The brief outline of the Corporate Social Responsibility (CSR) Policy of the Company and the initiatives undertaken by the Company on CSR activities during the year are set out in Annexure 3 to this report in the format prescribed in the Companies (Accounts) Rules, 2014. The policy is also available on the website of the Company. The composition and other details of the CSR Committee is detailed in the Corporate Governance Report. 14. STATUTORY AUDITORS M/s K. Venkatachalam Aiyer & Co., Chartered Accountants, were appointed as the Statutory Auditors of the Company during the 20th AGM held on 03rd September, 2014, for a period of three years. As per the provisions of Section 139 of the Companies Act, 2013, the appointment need to be ratified at each AGM during their tenure and your Directors recommend ratification of the appointment of Statutory Auditors for the FY 2016 - 2017 in the ensuing AGM. 15. AUDITORS’ REPORT a) Independent Auditor’s Report There are no qualification, reservation or adverse remark or disclaimer in the Independent Auditor’s Report provided by M/s. K. Venkatachalam Aiyer & Co., Chartered Accountants, for the FY 2015 - 2016. The notes to accounts forming part of financial statements are self-explanatory and need no further clarification. b) Secretarial Audit Report There are no qualification, reservation or adverse remark or disclaimer in Secretarial Audit Report provided by M/s. SVJS & Associates, Company Secretaries, 39/3519 B, First Floor, Padmam Apartments, Manikkath Road, Ravipuram, Kochi - 16 for the FY 2015 - 2016. The said report is annexed to this report as Annexure 4. 16. CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO Considering its nature of activities, the following disclosures are made as per the provisions of Section 134 (3) (m) of the Companies Act, 2013, read with Rule 8 (3) of the Companies (Accounts) Rules, 2014: (i) The Company has no activities relating to conservation of energy and technology absorption. (ii) There are no foreign exchange earnings or outgo during the period under review. 17. WHISTLE BLOWER POLICY OR VIGIL MECHANISM FOR DIRECTORS AND EMPLOYEES The Company promotes ethical behavior in all its business activities and has a mechanism for reporting unethical behavior, actual or suspected frauds or violation of the Company’s Code of Conduct or ethics policy. Pursuant to Section 177 (9) & 177 (10) of the Companies Act, 2013 and as per Regulation 4 (2) (d) (iv) & 34 (3) read with Para 10 of Part C of Schedule V of the SEBI (LODR) Regulations, 2015, the Company has a Whistle Blower Policy or Vigil Mechanism in place. The mechanism provide for adequate safeguards against victimization of Director(s)/Employee(s) who avail of the mechanism and also provides for direct access to the Chairman of the Audit Committee in exceptional cases. No personnel have been denied access to the Chairman of the Audit Committee, for making complaint on any Integrity issue. The said policy is available on the website of the Company which can be accessed by following the below link. http://www.muthootcap.com/pdf/MCSL_Whistle_Blowing_GuidelinesV1.pdf 18. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186 The Company has not given any loans or provided any guarantee or made any investments pursuant to Section 186 of the Companies Act, 2013, during the period under review. 19. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES All the Related Party Transactions have been approved by the Audit Committee and also by the Board. The transactions with Muthoot Fincorp Limited and Muthoot Bankers were approved by the shareholders at the AGM held on 03rd September, 2014 & 21st August, 2015 and the approval is valid for a period of five years. Transactions with related parties during the financial year under review are at arm’s length and in the ordinary course of business and confirming to the requirements of Companies Act, 2013. Omnibus approvals from Audit Committee were taken for the transactions that are foreseen and of repetitive in nature. Form AOC-2 as required under Section 134 (3) (h) of the Companies Act, 2013, read with Rule 8 (2) of the Companies (Accounts) Rules, 2014, is enclosed as Annexure 5. The Company has in place a Related Party Transaction Policy which was approved by the Board and has been placed on the website of the Company. The web link to the said policy is http://www.muthootcap.com/pdf/RPT_Policy.pdf 20. PARTICULARS OF EMPLOYEES The disclosures required under the provisions of Section 197 of the Companies Act, 2013, read with Rule 5 (1) and 5 (2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is annexed to this report as Annexure 6. 21. LISTING Equity shares of your Company was listed on BSE Limited since 24th April, 1995. During the FY 2015 - 2016 the equity shares was listed in National Stock Exchange of India Limited also. Your Company has paid the required listing fees to both the Stock Exchanges. During the FY 2015 - 2016, your Company has entered into new Listing Agreement with BSE Limited and National Stock Exchange of India Limited, in compliance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. 22. CORPORATE GOVERNANCE REPORT Your Company has taken adequate steps to adhere to all the stipulations laid down in Regulation 27 of the SEBI (LODR) Regulations, 2015 on Corporate Governance. The detailed report on Corporate Governance alongwith certificate on Corporate Governance from the Statutory Auditors is forming part of this Report. 23.MANAGEMENT DISCUSSION AND ANALYSIS REPORT The Management Discussion and Analysis Report for the year under review is included in a separate section forming part of this Report. 24. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The details in respect of internal control systems and their adequacy are included in the Management Discussion and Analysis Report, which forms part of this report. 25. DISCLOSURE AS PER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013: The Company has zero tolerance towards sexual harassment at the workplace. The Company has been employing 436 women employees in various cadres as on 31st March, 2016. The Company has in place an Internal Complaint Committee in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and rules made thereunder for reporting and conducting inquiry into the complaints made by the victim on the harassments at the work place. During the FY 2015 - 2016, the Company has received one complaint of sexual harassment, and the same has been duly inquired and concluded by taking appropriate action. There were no complaints pending for redressal as on 31st March, 2016. 26. FAIR PRACTICE CODE (FPC) The Company has a FPC approved by the Board on 2nd April, 2012, as per the guidelines issued by the RBI, to ensure better service and provide necessary information to customers to take informed decisions. The FPC is posted on the website of the Company. The FPC is also reviewed at frequent intervals to ensure its adequacy and appropriateness. 27. CUSTOMER GRIEVANCE The Company has a dedicated Customer Grievance Cell for receiving and handling customer complaints and ensuring that the customers are treated fairly and without bias at all times. All issues raised by the customers are dealt with courtesy and redressed expeditiously. 28. EXTRACT OF ANNUAL RETURN The extract of the annual return in form MGT - 9 is annexed to this report as Annexure 7. 29. DIRECTORS’ RESPONSIBILITY STATEMENT In accordance with the provisions of Section 134 (3) (c) and 134 (5) of the Companies Act, 2013, your Directors 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) we 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) we 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) we had prepared the annual accounts on a going concern basis; (v) we 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) we had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. 30. ACKNOWLEDGEMENT The Directors sincerely acknowledge the contribution and support from customers, shareholders, depositors, debenture holders, Central and State governments, Bankers, SEBI, BSE Limited, National Stock Exchange of India Limited, Share Transfer Agents, Rating Agencies, Reserve Bank of India, Registrar of Companies, Kerala and Lakshadweep and other Statutory and Regulatory Authorities for the kind co-operation and assistance provided to us. The Directors also place on record their gratitude to the employees and well-wishers for their continued commitment, dedication and co-operation. For and on behalf of the Board of Directors Sd/- Thomas John Muthoot Chairman Kochi 19th April, 2016 |