MANAGEMENT DISCUSSION & ANALYSIS

ABOUT THE INDUSTRY:

NBFCs are an integral part of the country's financial system complementing the services of commercial banks. The main reason attributed to the growth of NBFCs is the combrhensive regulation of the banking system. Other factors include higher level of customer orientation, lesser br/post sanction requirements and higher rates of interest on deposits being offered by NBFCs. It is mandatory that every NBFC should be registered with RBI to carry on any business of non banking financial institution.

The activities of non-banking financial companies (NBFCs) in India have undergone qualitative changes over the years through functional specialization. The role of NBFCs as effective financial intermediaries has been well recognized as they have inherent ability to take quicker decisions, assume greater risks, and customize their services and charges more according to the needs of the clients. While these features, as compared to the banks, have contributed to the proliferation of NBFCs, their flexible structures allow them to unbundle services provided by banks and market the components on a competitive basis. The distinction between banks and non-banks has been gradually getting blurred since both the segments of the financial system engage themselves in many similar types of activities. At brsent, NBFCs in India have become prominent in a wide range of activities like hire-purchase finance, equipment lease finance, loans, investments, etc. By employing innovative marketing strategies and devising tailor-made products, NBFCs have also been able to build up a clientele base among the depositors, mop up public savings and command large resources as reflected in the growth of their deposits from public, shareholders, directors and other companies, and borrowings by issue of non-convertible debentures, etc.

The importance of NBFCs in delivering credit to the unorganized sector and to small borrowers at the local level in response to local requirements is well recognized. The rising importance of this segment calls for increased regulatory attention and focused supervisory scrutiny in the interests of financial stability and depositor protection.

NBFCs' niche positioning, good market knowledge and large customer outreach (will) continue to support their access to customers. Further, the Reserve Bank's regulations permitting non-deposit accepting NBFCs to act as business correspondents could enhance NBFCs' position as a conduit for banks to meet priority sector lending requirements and support the non-interest income of NBFCs.

The RBI and the Government have taken notable steps to address the economic headwinds. The Government has already formed the Project Management Group to facilitate large projects, undertook actions on power tariffs, gas price and continued diesel price increases. The RBI has took several steps to resolve the Non Performing Asset (NPA) issue including guidelines on 'Early recognition of Financial Distress, Prompt steps for resolution and Fair Recovery for Lenders: Framework for Revitalizing Distressed Assets in the Economy'.

The total number of NBFCs accepting deposits as on June 30, 2015 is approx 218 and NBFCs not accepting deposits is 11,582. (Source: <https://rbi.org.in/SCRIPTs/BS_NBFCList.aspx>) Overview of the NBFC Sector:

The NBFC sector has been gaining systemic importance in the recent years and the share of NBFC has steadily grown from 10.7% of banking assets in 2009 to 14.3% of banking assets in 2014.

NBFCs typically have several advantages over banks due to their focus on niche segment, expertise in the specific asset classes, and deeper penetration in the rural and unbanked markets. The growing asset size of the NBFC sector has increased the need for risk management in the sector due to growing interconnectedness of NBFCs with other financial sector intermediaries. The Reserve Bank of India (RBI) has been in the recent past trying to strengthen the risk management framework in the sector, simplify the regulations and plug regulatory gaps so as to brvent regulatory arbitrage between banks and NBFCs.

Due to subdued economic growth, last two years, have been challenging period for the NBFCs with moderation in rate of asset growth, rising delinquencies resulting in higher provisioning thereby impacting profitability. However, comfortable capitalization levels and conservative liquidity management, continues to provide comfort to the credit profile of NBFCs in spite of impact on profitability.

The cyclical stress on asset quality and profitability of NBFCs is covered by strong capital adequacy, secured lending and lower ALM risk. With increased importance of NBFC sector Structural support expected from regulator is higher. RBI regulations are in line with its desire to strengthen financial system and reduce the regulatory arbitrage between banks and NBFCs. Accordingly, the new regulatory framework will lead to strengthening of NBFCs balance sheet, with increase in loss absorbing Tier I capital requirement for systemically important NBFCs and deposit accepting NBFCs and restricting leverage for smaller NBFCs in line with higher core Tier I requirement for Banks under Basel III guidelines. On NPA recognition norms and provisioning on standard assets also, banks and NBFC will be at par. The increase in disclosure requirement and corporate governance norms will improve the transparency and increase the accountability of management and the board and improve the investor awareness.

An Overview of Regulation of NBFCs

In response to the perceived need for better regulation of the NBFC sector, the Reserve Bank of India (RBI) Act, 1934 was amended in 1997, providing for a combrhensive regulatory framework for NBFCs. The RBI (Amendment) Act, 1997 conferred powers on the RBI to issue directions to companies and its auditors, prohibit deposit acceptance and alienation of assets by companies and initiate action for winding up of companies.

(1) Mission

To ensure that:

• the financial companies function on healthy lines,

• these companies function in consonance with the monetary policy framework, so that their functioning does not lead to systemic aberrations,

• the quality of surveillance and supervision exercised by the RBI over the NBFCs keeps pace with the developments in this sector.

• combrhensive regulation and supervision of Asset liability and risk management system for NBFCs,

(2) Amendments to the Reserve Bank of India (RBI) Act, 1934

RBI Act was amended in January 1997 providing for, inter alia.

• Entry norms for NBFCs and prohibition of deposit acceptance (save to the extent permitted under the Act) by unincorporated bodies engaged in financial business,

• Compulsory registration, maintenance of liquid assets and creation of reserve fund,

• Power of the RBI to issue directions to an NBFC or to the NBFCs in general or to a class of NBFCs.

• Combrhensive regulation and Supervision of deposit taking NBFCs and limited supervision over those not accepting public deposits.

The Reserve Bank of India (RBI) on 10th November 2014 issued the revised Regulatory Framework for Nonbanking Finance Companies (NBFCs), with an objective to streamline the regulations for the sector. The highlights of the revised regulatory framework are as follows:

> Minimum net owned fund (NoF) of INR 2 Crores for all NBFCs

> The limit for acceptance of deposits across the NBFC sector has been harmonised by reducing the same for rated asset finance companies(AFC) from four times to 1.5 times of NOF, with immediate effect.

> Revision in the threshold limits for defining systemic significance for Non-Deposit taking NBFCs.

> Enhanced prudential regulations viz. Fair Practices Code (FPC), Know Your Customer (KYC) norms should be made applicable to NBFCs wherever public funds are accepted and conduct of business regulations will be made applicable wherever customer interface is involved.

> The framework has harmonized the asset classification criteria norms in respect of NBFC-ND-SI and NBFC - D, and have aligned it in a phased manner.

> Increase in Provisioning norms for standard assets in a phased manner

(3) Basic Structure of Regulatory and Supervisory Framework

• Prescription of prudential norms akin to those applicable to banks,

• Submission of periodical returns for the purpose of off-site surveillance,

• Supervisory framework comprising (a) on-site inspection (CAMELS pattern) (b) off-site monitoring through returns (c) market intelligence, and (d) exception reports by statutory auditors,

• Punitive action like cancellation of Certificate of Registration (CoR), prohibition from acceptance of deposits and alienation of assets, filing criminal complaints and winding up petitions in extreme cases, appointment of the RBI observers in certain cases, etc.

• Co-ordination with State Governments to curb unauthorised and fraudulent activities, training programmes for personnel of NBFCs, State Governments and Police officials.

(4) Other steps for protection of depositors' interest

• Publicity for depositors' education and awareness, workshops / seminars for trade and industry organizations, depositors' associations, chartered accountants, etc.

ABOUT THE COMFORT INTECH LIMITED:

Business Overview:

Our Company is a non deposit taking NBFC, registered with the RBI vide Registration No.B.01.00419. However, RBI Ahmedabad vide order dated September 24, 2014 has cancelled the NBFC Registration Certificate. Comfort Intech Limited has filed an appeal with Appellate Authority, New Delhi against the said RBI Order. The hearing took place on 20th March, 2015 and the order is awaited from the Appellate Authority. Our Company has been in the business of providing financial services since inception. This endeavor was initiated by Mr. Anil B. Agrawal, qualified Chartered Accountant and a first generation entrebrneur.

Our Company is primarily focused in providing inter corporate loans, personal loans, loans against shares & securities, loans against properties, trade financing, bills discounting, trading in shares & securities and arbitrage business in stock and commodity market. Being an, NBFC our Company has positioned itself between the organized banking sector and local money lenders, offering the customers competitive, flexible and timely lending services.

Our Company offers financial services to commercial, industrial and financial clients with a one stop financial solution.

Products & Services:

Our Company offers financial services to commercial, industrial and financial clients with a one stop financial solution­s' Trade Finance & Bill Discounting

¦s Working capital loans

¦ Loan against property

¦ Margin funding and loan against approved securities

FINANCIAL PERFORMANCE: Consolidated Revenues:

The total consolidated income of the Company for the FY 2014-15 comprises operating revenues of Rs. 1414.08 Lacs and other income of Rs. 11.66 lacs as compared to brvious fiscal operating revenues of Rs. 1230.40 lacs and other income of Rs. 1.15 lacs.

Standalone Revenues:

During the fiscal 2015, the total income of the Company stood at Rs. 1408.46 Lacs as compared to brvious fiscal of Rs. 1155.26 Lacs.

Consolidated Profits / (Loss):

Profit stood at Rs. 536.05 Lacs before tax and Profit after Tax stood at Rs. 512.73 Lacs as compared to brvious fiscal Loss before Tax stood at Rs. (291.12) Lacs and Loss after Tax stood at Rs. (323.22) Lacs.

Standalone Profits / (Loss):

Profit stood at Rs. 577.04 Lacs before tax and Profit after tax stood at Rs. 553.72 Lacs for the fiscal 2015 as compared to the brvious year Loss before tax Rs. (318.17) Lacs and after tax Rs. (350.26) Lacs.

Your Company has proposed a dividend of 2% i.e Rs. 0.02 paise per equity share amounting to Rs. 63,98,762/- for the accounting year ended 31st March 2015.

Your company already intimated you regarding Wholly Owned Subsidiary in the name of Finsolution Services FZE, in

United Arab Emirates. During the fiscal 2015, the gross operational income of the subsidiary stood at AED 1.03 lacs and Operating Loss for the fiscal year 2015 stood at AED (2.46) lacs as compared to the brvious year AED 4.91 lacs and profit AED 1.74 lacs.

The standalone net worth of your company at the year end stands at Rs. 9171.70 Lacs which translated to a book value of Rs. 2.87/-. per share of face value of Re. 1/- each. The consolidated net worth of your company at the yearend stands at Rs. 9268.94 lacs which translated to a book value of Rs. 2.89/- per share of face value of Re. 1/- each. The Board has recommended a dividend of 2% i.e Rs. 0.02 paise per equity share amounting to Rs. 63,98,762/- (Rupees Sixty Three lacs Ninety Eight Thousand Seven Hundred and Sixty Two only) for the accounting year ended 31st March 2015.

Financial Highlights:

• Income from operation stood at Rs. 1396.81 Lacs for fiscal 2015

• Profit Before Taxes of fiscal 2015 was Rs. 577.04 Lacs.

• Profit After Taxes of fiscal 2015 was Rs. 553.72 Lacs

• Basic Earnings per share for fiscal 2015 was Rs. 0.17 per share.

• Cash & cash equivalents (including fixed deposits with banks) stood at Rs. 894.50 Lacs as on March 31,2015

• Net Worth of company stood at Rs. 9171.70 Lacs as on March 31, 2015

• A dividend of 2% on the paid up capital of the Company i.e Rs. 0.02 paise per equity share amounting to Rs. 63,98,762/-(Rs. Sixty Three lacs Ninety Eight Thousand Seven hundred Sixty Two) for the accounting year ended 31st March 2015 has been recommended by the Board.

SWOT ANALYSIS: Strengths:­>

Ready contacts for business development: Our Company has strong relationships with the well established business houses in India cultivated through several years of client servicing.

> Promoted and managed by qualified and experienced professionals: Our Company is promoted by Mr. Anil B. Agrawal, Chartered Accountant who has near about 30 years of experience in financial services. The board of our Company comprises of qualified professionals, experienced in the industry.

> Existing profit making & dividend paying company: Our Company is an existing Profit making and paying dividend continuously for the brvious seven years except in the brvious year due to provisional loss during the brvious year.

> Support of Group Entity: Comfort Securities Limited, one of our Group Entities is in the Business of capital market services and merchant banking activities is having a clientele base near to 4000 including corporate, HNI and retail investors. We leverage the cliental base of our group entity to provide funding in the form of margin funding as well as in terms of Loan against Demat Shares.

Weakness:­>

Branding: Despite our ready contacts for business development & listing on esteemed Exchange (BSE), our company is not a well established brand among large NBFC players who have access to larger financial resources.

> Accessibility: We do not have branches on a Pan India basis, so we are not able to explore the business opportunities in those regions.

Opportunities:­>

Large market: The players in the NBFC sector still have a lot of scope to cover larger market and the rural markets are still untapped.

> Desire for status: With increased desire of individuals to improve their standard of living, the NBFC industry is getting exposed to new category of Client (Individuals) in a big way with large share of business coming from this segment apart form corporate clients.

Threats:­>

Economic Downturn: If the Economic downturn is prolonged it can reduce the financing need of people due to shrinking business opportunities.

> Private Banks: Private Banks are also working on the similar business model as the NBFCs do, thereby giving a very

> RBI and Government restrictions: With more stringent norms governing the functioning of NBFC and certain government restrictions act as a hindrance in smooth functioning of NBFC.

FUTURE STRATEGY:

> Expansion of existing activities: - Our Company intends to expand its financial services by enhancing its focus on margin funding, loan against shares and securities, loan against properties and corporate loan, bill discounting and working capital loan.

> Financial Management/Advisory Services: - We have an in house team which has the capacity to provide services in the area of financial management/advisory services like syndication for big ticket loans from banks, project appraisals, debt restructuring and arranging non fund based limits form bank. Our Company is planning to foray into business of financial management/advisory services with the potential clients.

> Differentiated Services:-In the growing economy, the corporate clients will be requiring funds for further expansions. Our Company would be providing all diversified service portfolio under one umbrella to cater most of the customer needs and demands.

> Brand recognition: We are in such a business where we are facing lot of competition. We are planning to put more efforts to build Comfort as a well known brand. Despite our existing contacts & listing on esteemed Exchange (BSE),our Company is not a well established brand among large NBFC players. We will be making the necessary arrangements for our brand reorganization.

REGULATORY:

As Being a Non-Banking Finance Company, is regulated by department of Non-Banking supervision of Reserve Bank of India. Company is current under category of Non -Deposit taking company so company is not within purview of various guidelines applicable. However RBI has issued several guidelines applicable to Non-Deposit taking companies, notable among which are:

• Submission of Financial

• Submission of Business-Continuity Certificate

• To exercise the Fair Practice Code

• Compliance with Prudential norms

Apart from this your Company total assets size has not increased to more than 500 Crores and your company is no more systematically important company for complying various compliances with RBI.

Company is complying various statutory provisions such as Companies Act, Income tax, Service tax, BSE Listing Agreement provisions and other applicable laws and regulations applicable to the company.

However, Your Company has received an order from Reserve bank of India, Ahmedabad for the cancellation of certificate of Registration to carry on the business of Non-Banking Financial Institution under section 45-IA(6) of the Reserve Bank of India Act, 1934 vide order dated September 24, 2014.

The Company has filed an appeal against the same with the Appellate Authority, Ministry of Finance, Government of India, New-Delhi against the said RBI order. The Hearing took place on March 20, 2015 and the order is awaited from the Appellate Authority.

INTERNAL CONTROL SYSTEM AND ADEQUACY:

Internal Control Systems has been designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance's with management's authorization and properly recorded and accounting records are adequate for brparation of financial statements and other financial information. Internal check is conducted on a periodical basis to ascertain the adequacy and effectiveness of internal control systems. The management has put in place internal systems for review and monitoring of nonperforming assets of the company and to indicate corrective action for effecting recoveries.

M/S N. Kanodia & Co., Practicing Chartered Accountant performed the duties of internal auditors of the company for the year 2014-15 and their report is reviewed by the audit committee and noted by the Board Committee from time to time.

CAUTIONARY:

Statement in the Management Discussion & Analysis, describing the company's objectives, projections and estimates are forward looking statement and progressive within the meaning of applicable laws & regulations. Actual result may vary from those exbrssed or implied. Important developments that could affect the company's operations are significant changes in political and economic environment in India, tax laws, RBI regulations, exchange rate fluctuation and other incidental factors.