DIRECTORS' REPORT Your Directors have pleasure in presenting the Ninth Annual Report together with the Audited Accounts of the Company for the Year ended 31st March 2016 (FY 2015-16). 1. Overview The Company is a non-systemically important Core Investment Company (CIC-non-SI) and has been exempted from registration under Section 45 IA of Reserve Bank of India Act, 1934. The Company has not accepted any public deposits during the FY 2015-16 and there has been no change in the business of the Company during the said period. During the year, the Company has obtained an “In-Principle” approval of the Reserve Bank of India to set up a Small Finance Bank (SFB) and as per the terms and conditions of the “in-principle” approval, the promoting NBFC viz., the Company is required to be registered with RBI as Core Investment Company (CIC). Accordingly, the Company is in the process of filing an application with RBI for registering itself as a CIC. The Company was converted into a public limited company and the name of the Company was changed to Equities th Holdings Limited. The RoC issued a fresh certificate of incorporation consequent to change of name on 18 June, 2015. The equity shares of the Company have been listed on the BSE Limited and National Stock Exchange of India Limited on 21st April, 2016 and consequently the Company has become a listed entity with effect from that date. 2. Dividend The Directors do not recommend any dividend for the year. 3. Management Discussion and Analysis The Management Discussion and Analysis Report, highlighting the important aspects of the business of the Company and its Subsidiaries is given in this Report as Annexure-I. 4SFB License Application During the previous year, RBI invited applications for setting up of Small Finance Banks (SFB) and Payment Banks. The Company made an application to RBI for a license to promote a Small Finance Bank (SFB). The RBI granted “in principle” approval to the Company to set up a SFB under Section 22 of the Banking Regulation Act, 1949, subject to certain conditions through a letter dated 7th October, 2015 (the “SFB In-Principle Approval”). The SFB In-Principle Approval is valid for a period of 18th months from 7th October, 2015 i.e. until 6th April, 2017 to enable the applicants to comply with the SFB Guidelines, fulfill the conditions in the SFB In-Principle Approval and any other conditions as may be stipulated by the RBI. At the time of making application to RBI for SFB license, the Company had proposed to merge the operations of EMFL, EFL and EHFL into a single wholly owned subsidiary, which will operate as a Small Finance Bank. Accordingly, these subsidiary companies have filed Company Petition with Hon'ble High Court of Judicature at Madras, for merging EMFL and EHFL with EFL. The petition was taken up for final hearing on 28th April, 2016. The High Court orders are awaited. The Company is in the process of fulfilling various other conditions stipulated in the SFB In-Principle approval and expects the merged subsidiary company to start the banking operations during FY 2016-17. 5. Material changes after the Balance Sheet Date (31st March 2016) Following are the material changes after the Balance Sheet Date of 31st March, 2016: a. The Initial Public Issue of 197,880,429 equity shares of the Company at the issue price of Rs.110/- consisting of 65,454,545 fresh issue of equity shares and 132,425,884 equity shares under offer for sale was made and the same was fully subscribed. Consequently, the paid up share capital of the Company stands increased by Rs. 65,45,45,450/- b. The shares of the Company have been listed in BSE and NSE on 21st April, 2016. c. Out of the IPO proceeds of Rs.720 crore, an amount of Rs.616 crore was invested in equity capital of subsidiaries in April 2016, in line with the Prospectus. 6. Corporate Governance Rating CRISIL has reaffirmed 'CRISIL GVC Level 2' rating for the Company. This Governance and Value Creation (GVC) rating indicates very high capability of the Company with regard to Corporate Governance and value creation for all its stakeholders. 7. Corporate Governance Report A report on the Corporate Governance as required under Regulation 24 of Securities Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2015 ( SEBI (LODR) ) is given in this Report as Annexure-II. Details on number of Meetings of Board and Committees and composition of various Committees of the Board including their Terms of Reference are in the annexed Corporate Governance Report. The Company has devised a Vigil mechanism for directors and employees, details whereof is available on the Company's website at www.equitas.in/sites/default/files/EHL%20Whistle%20Blower%20Policy_0.pdf. 8. Corporate Social Responsibility The Company has laid down a Corporate Social Responsibility Policy. In accordance with the Policy, the Company contributes 5% of its net profits to Equities Development Initiatives Trust, a Public Charitable Trust, set up by the Company. CSR activities are carried out through this Trust. A report on the CSR activities undertaken by the Company is given as Annexure III. 9. Directors and Key Managerial Personnel 12.1 While selecting Directors, the Company looks for an appropriate balance of skills, experience, independence and knowledge to enable them discharge their respective duties and responsibilities effectively. The Company has laid down a clear Policy on remuneration of Directors, Key Managerial Personnel and other employees. 12.2 During the year under review, Ms Jayshree Ashwinkumar Vyas was appointed as Independent Director in the Annual General Meeting held on 29th June, 2015 for a term of five years up to 11th November, 2019. Mr Rangachary N, Mr Arun Ramanathan, Mr Kuppuswamy P T, Mr Yogesh Chand Nanda, Mr Rajaraman P V, Mr Srinivasan N and Mr Vinod Kumar Sharma were appointed as Independent Directors in the Annual General Meeting held on 29th June, 2015 for a term of five years up to 6th May, 2020. 12.3 Mr Paolo Brichetti, Mr Viswanatha Prasad Subbaraman, Mr Nagarajan Srinivasan and Mr Sundaram st Ramakrishnan, Nominee Directors, ceased to be the Directors of the Company with effect from 21st April, 2016 since the provisions of Articles of Association granting rights to investors of the Company to nominate a Director on the Board of the Company have fallen away on listing of equity shares of the Company in Stock st Exchanges on 21st April, 2016. The Board places on record its deep appreciation for the services rendered by these Directors as members of the Board and as members of the various Committees of the Board that they served on. 12.4 Mr Vasudevan P N, Managing Director, the only non-independent Director retires by rotation this year, and being eligible, offers himself for re-appointment. The Directors recommend his re-appointment as Director of the Company. Appropriate resolution for his re-appointment is being placed for approval of the shareholders at the ensuing Annual General Meeting. 10. Overall Remuneration Details of all elements of remuneration paid to all the Directors are given in the Corporate Governance Report. The Directors of the Company are not entitled to stock option. Details of remuneration as required under Section 197(12) of Companies Act 2013 read with Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel ) Rules, 2014 is given in this report as Annexure-IV. 11. Evaluation of Board Performance The performance of the Chairman, the Board, Audit & Risk Management Committee, Nomination, Remuneration & Governance Committee (NRGC), Corporate Social Responsibility Committee and that of individual Directors for the Year 2015-16 were evaluated on the basis of criteria as approved by the Board. All directors were provided the criteria for evaluation which was duly filled in and sent to Mr Sridharan N, CFO of Equitas Micro Finance Ltd, who is the Secretary to the NRGC. Mr Sridharan N then collated the feedback and the same was shared in confidence with the Chairman of the NRGC. The Chairman of NRGC discussed the same at length with the other members of the Committee. Areas of improvement in the functioning of the Board and Committees were identified. Later at the Board Meeting, the Chairman of NRGC shared the feedback with the Chairman of the Board and the other Directors. Specific action points were drawn out. 12. Declaration from Independent Directors The Independent Directors (IDs) have submitted a declaration of independence, as required pursuant to section 149(7) of the Act, stating that they meet the criteria of independence as provided in section 149(6). In the opinion of the Board, these IDs fulfill the conditions specified in the Act and the rules made there under for appointment as IDs and confirm that they are independent of the Management. 13. Key Managerial Personnel Pursuant to the provisions of section 203 of the Act read with the rules made thereunder, the following employees are the whole-time Key Managerial Personnel of the Company: 1. Mr Vasudevan P N, Managing Director 2. Mr Bhaskar S, Chief Financial Officer 3. Ms Jayashree S Iyer, Company Secretary 14. Directors' Responsibility Statement The Directors' Responsibility Statement as required under Section 134 (3) (c) of the Companies Act, 2013 is given in this Report as Annexure-V. 15. Auditors M/s Deloitte Haskins & Sells, Chartered Accountants, were appointed as Auditors of the Company for 2 years till the conclusion of the 10th Annual General Meeting to be held in the year 2017. The Company has received a letter from them, stating that they satisfy the criteria provided in Section 141 of the Companies Act, 2013 and the continuance of their appointment, if ratified, will be in accordance with the conditions prescribed under the Companies (Audit and Auditors) Rules, 2014. The Directors recommend the ratification of appointment of M/s Deloitte Haskins & Sells, Chartered Accountants, as Auditors of the Company from the conclusion of the ensuing AGM till the conclusion of the 10th Annual General Meeting to be held in the year 2017. 16. Secretarial Auditor The Board appointed Dr B Ravi, Practising Company Secretary to conduct Secretarial Audit for the Financial Year ended 31st March, 2016. The Secretarial Audit Report for the Financial Year ended 31st March, 2016 is given in this Report as Annexure-VI. 20. Information as per Section 134 (3) (q) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 20.1 The Company has no activity relating to conservation of energy or technology absorption. 20.2 During the year, the Company did not have any foreign currency earnings. Foreign currency expenditure of Rs.57.30 lakh was incurred by the Company mainly towards sitting fee for Directors and legal and professional fee in connection with the IPO. 17. Details of Employee Stock Option Scheme The Nomination, Remuneration and Governance Committee constituted by the Board of Directors of the Company, administers the Employee Stock Option Schemes, formulated by the Company, from time to time. On 17th December, 2007, the Company implemented an Employees Stock Option Scheme 2007 (ESOP Scheme 2007). Under the plan, the Company was authorized to issue up to 56,20,000 Equity Shares of Rs.10 each to eligible employees of the Company and its Subsidiaries. Employees covered by the plan were granted options to purchase shares of the Company subject to the terms and conditions of the Scheme. Effective 10th November, 2012, the Company established a new employee stock option scheme titled Equitas Employees Stock Option Scheme, 2012 (ESOP Scheme 2012). Under the plan, the Company was authorized to issue up to 10,00,000 Equity Shares of Rs. 10 each to eligible employees of the Company and its Subsidiaries. ESOP Scheme 2007 was terminated and the outstanding options under the ESOP Scheme 2007 have been transferred and made available for grant under the ESOP Scheme 2012. Effective 8 July, 2014, the Company established a new employee stock option scheme titled Equities Employees Stock Option Scheme, 2014 (ESOP Scheme 2014). Under the plan, the Company is authorized to issue up to 1,05,00,000 (Post bonus in the ratio of 2:1) Equity Shares of Rs.10 each to eligible employees of the Company and its subsidiaries as per the terms and conditions of the Scheme. ESOP Scheme 2012 was terminated. Further, the outstanding options under the ESOP Scheme 2012 have been transferred and made available for grant under the ESOP Scheme 2014. Thereafter effective 7 September, 2015, the Equities Employee Stock Option Scheme, 2015 (“Equities ESOP 2015”) was implemented. The Equities ESOP 2015 was for a total of 22,200,000 Equity Shares. In accordance with the scheme, Equities ESOP 2014 was terminated and all options that had lapsed, cancelled, withdrawn, recalled or surrendered (including those having lapsed by forfeiture) or outstanding under the Equitas ESOP 2014 were transferred to Equities ESOP 2015. 22. Particulars of contracts or arrangements with related parties During the period under review, the Company has not entered into any related party transactions under Section 188 of the Companies Act, 2013. 18. Risk Management The Company is a Core Investment Company and its operations are limited to being a CIC. The risks therefore relate to investments made in its subsidiaries. The operations of each of the subsidiaries, the risks faced by them and the risk mitigation tools followed to manage them are reviewed periodically by the Audit and Risk Management Committees and the Boards of the respective subsidiaries. The same are considered by the Board of the Company as well. Details of the same are covered in the Management Discussion and Analysis Report. 19. Internal Financial Controls The Company has clear delegation of authority and standard operating procedures. These are reviewed periodically by the Audit and Risk Management Committee. These measures help in ensuring adequacy of internal financial controls commensurate with the nature and scale of operations of the Company. 20. Loans/Guarantee/Investments During the year, the Company had given fresh loans amounting to Rs.55 crore to its wholly owned subsidiaries viz., EHFL and EFL which were fully repaid. The amount of loans outstanding from these subsidiaries as on 31st March, 2016 is Nil. The guarantees extended by the Company on the loans availed by its wholly owned subsidiaries and other companies amount to Rs.1,550 crore as on 31st March, 2016. 21. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 The Company has in place a Policy on Prevention of Sexual Harassment in line with the requirements of The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Internal Complaints Committee has been set up to redress complaints received regarding sexual harassment. All employees are covered under the policy. No complaint has been received by the Company under this Policy during the year 2015-16. 21.1. There have been no significant and material orders passed by Regulators or Courts or Tribunals impacting the going concern status and the future operations of the Company. 22.Acknowledgment The Directors thank all our investors for showing confidence and belief in Equitas. The Directors also thank the Subsidiary Companies for their continued support in various activities. The Directors also thank the Financial Institutions and Banks associated with the Company and the subsidiaries for their support. The Directors also thank the employees of the Company and the subsidiaries for their commitment and contribution in progressing towards the Mission and Vision of the or ganisation. For and on behalf of the Board of Directors P N Vasudevan Managing Director N Rangachary Chairman Place: Chennai Date: 6th May, 2016 |