MANAGEMENT DISCUSSION AND ANALYSIS Resources and liquidity During the year, the Company has been availing various credit facilities from various Banks, lenders and from institutions for its microfinance operation which is the main activity of the Company. The Company has raised debt funds through term loan, cash credit limit, Inter Corporate Deposit, listedunlistcd Non-Convertible Debenture and also raised funds through securitization/assignment transactions. In over 24 years of operation, Satin has developed partnerships with over 50 public sector banks, private sector banks, foreign banks and other domestic and overseas financial institutions. There feavc been no delays/defaults in servicing of principal and interest with respect to the said borrowings. The Company has enhanced its trust and credibility with Banks and financial institutions over time thus getting increased exposure from them. During the month of July, 2014, the Company raised subordinated debt (long-term tier-II) of Rs 21 Crores by issuing NCDs the Company has also raised money amounting to approx. Rs. 41.20 Crorcs and subordinated debt of approx. Rs 21.19 Crores on 23rd December. 2014 as External Commercial Borrowing. The Company has obtained the shareholders' approval at the Extraordinary General Meeting to issue equity shares and warrants convertible into equity. The Company is in the process of taking the necessary approval to close the transaction. Credit Analysis and Research Limited (CARE) has reaffirmed the Long Teim Facilities Rating of SCNL of CARE BBB+ (Triple B Plus) aggregating Rs. 1,300 Crorcs. In view of the overall positive environment in the Microfinance Industry in India and better regulatory clarity, the overall liquidity and funding to MFIs his further improved. The Company has been regular in repayment to all its lenders and has excellent relationship with all the financial institutions and banks. Industry Scenario In 2010-11, India's microfinance market was facing difficult time but today, :t can be said that the microfinance sector in the India has emerged from this crisis stronger than before. The Industry has matured with stronger institutions, the credit bureaus arc functional, the investors and lenders are back in business, there is greater focus of the government on financial inclusion with launch of Micro Units Development and Refinance Agency (Mudra) Bank, greater regulatory clarity, RBI considering giving new licensee for Small and Payment: banks etc. In view of the above, there are better days ahead for Indian Microfinance industry. Business Review The Company has done well during the financial year 2014-15 as compared to last year and it's peers in the industry. The Company has leadership position in the underpenetrated North India The portfolio quality and operating cost of the Company is amongst the best in the industry. The Company has an experienced and stable management term and Board of Directors. The Company is hopeful of performing well during the current year. Opportunities Financial sector development provides small enterprises and households with market access leading to their inclusion in the regional and ultimately the global economy. RBI has recently increased tne limit of eligible borrowers to whom NBFC-MFI can lend and further liberalizediome norms which is good for the growth of the industry aid for the borrowers. This has improved the support and confidence of all stakeholders for the microfinance sector. The Company is operating in Northern and Central India and the reach of other MFIs is comparatively less and hence there is a huge opportunity to be tapped and large population to be served. The Company is making all efforts D use its experience of working in the same geography for .ast many years. Challenges While the regulatory environment has improved the stakeholder's confidence still continue to be exposed to inherent risks in business model. Given that the microfinance borrowers belong to low income segment, customers are more prone to default. Moreover, with MFI operations concentrated in specific geographies, geographic concentration risks persist, these risks include natural disasters, social unrests, or political upheavals. The Reserve Bank of India has issued a series of circulars, directions and notifications to give the required regulatory clarity. Also the MFI industry has also collectively worked to bring back the stakeholders' confidence by working responsibly. The Company has a strong and experienced Board having multiple personalities having experience in different areas. The Company's senior management team has expertise in their respective field and the Company has geographical advantage, time tested system} and processes, effective internal audit and risk department, association with a large number of lenders and clean repayment track record, good credit rating in the sector which helped thj Company to achieve the performance better than its competitors. Outlook The overall outlook for the Microfinance Industry has improved during the financial year 2014-15. The Reserve Bank of India has issued a number of circulars and provided the required regulatory clarity. A major outcome of the guidelines was the involvement of credit bureaus to record and monitor the creditworthiness of borrowers. There is greater emphasis today on credit score prior to disbursement of loins, and subsequent data sharing with credit bureaus. The credit bureau checks enable MFIs to assess the extent of leverage of prospective customers and their repayment track record. Additionally, the Microfinance Institutions Network (MFIN) has brscribed a code of conduct that provides guidelines for MFI operations and greater uniformity in their functioning. Risk & Concerns The Company is exposed to financial, operational and political risks. Because an MFI"s loan portfolio is its most valuable asset, the financial risks i.e. credit, market and liquidity arc of greatest conem. Financial risks begin with the possibility that a borrower may no: pay the loan on time with interest (credit risk). They include the possibility that the MFI might lose a significant part of the due of its loan portfolio as a result of an economic downturn, hyperinflation, and other externally generated causes (market nsk). Financial risk can also include changes in interest rates of government lending programs or the possible enforcement of laws. Market risks include lower prices for borrowers' products and services, which could directly affect their ability or willingness to repay an outstanding loan. MFIs should be particularly aware of liquidity risk the lack or shortage of funds for current and future expenses or oans. Liquidity risk can result from an overly aggressive lending strategy, low levels of on-time payment and seasonal variant ions of demand or unanticipated expenses. To brpare for these risks, Company usually hold in reserve certain percent of assets in cash and in short-term assets. The Company maintain reserves and provisions in its financials for meeting expected or unexpected future contingencies. The Company follows a couscivativc filiaucial appioacli by following pi udcut business and i isk maiugcnicnl p i a c t i t c s . Adequacy of internal controls The Company has proper and adequate internal controls systems to ensure that all activities are monitored and controlled against any unauthorised use or disposition of assets, misappropriation of funds and to ensure that all the transactions are authorised, recorded, reported and monitored correctly. For the purpose of correctness and accuracy the proccss of job rotation is followed in different departments. The Company has adequate working infrastructure having computerization in all its operations including accounts and MIS. The Company has established an Audit Committee to review and strengthen the adequacy of internal control. The internal auditors of the Company concoct audit of various departments based on an annual audit plan covering key area of operations and reviews and evaluates the adequacy and effectiveness of internal controls, ensuring adherence to operating guidelines and systems and recommending improvements for strengthening them. Human Resource Development The Company has young, capable, experienced and dedicated manpower and various professionals support from in house and external sources w.th expertise in different areas leading the growth of Company towards better operational and financial position. The number o f employee* as at 31st March, 2015 stood a t 1788 (Previous Yeu-1243). The Reserve Bank of India in exoreic of its powers under The Reserve Bank of India Act, 1934, has granted NBFC-MFI (Serial No. B-14.01394) status to the Company and the Company has no public deposit. The Board of Directors of the Company has passed a resolution that the Company will not accept public deposit during 2015-16. RESERVE BANK OF INDIA-REGISTRATION AND DIRECTIONS Your Company has been following all relevant guidelines issued by Reserve Bank of India from time to time. The Company has decided not to accept the public deposits with effect from 20" November, 2004. The Company had intimated the same to Reserve Bank of India. Further, your Company has Capital Adequacy Ratio of 15.67% as on 31" March. 2015. The Reserve Bank of India on 27° November, 2014 issued Guidelines for Licensing of Small Finance Banks in the Private Sector. The object of Small Finance Banks shall be to primarily undertake basic banking activities of acceptance of deposits and lending to unserved and undeserved sections including small business units, small and marginal farmers, micro and small industries and unorganized sector entities by provision of savings vehicles. There will not be any restriction in the area of cperations of small finance banks. The small finance bank will be subject to all prudential norms and regulations of RBI as applicable to existing commercial banks including requirement of maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). In pursuance to aforesaid guidelines the Company on 24° January. 20.5 has applied with Reserve Bank of India for a License to jperate as 'Small Finance Bank'. CORPORATE GOVERNANCE As required under Clause 49 (X) of the Listing Agreement entered into by the Company with the Stock Exchanges, a detailed report on corporate governance has been provided in a separate section which forms part of this annual report. The Company has complied with the requirements of Corporate Governance that have to be made in this regard. The requisite certificate from M/s A. K. Gangaher & Co., the statutory auditors of the company regarding compliance with the conditions of Corporate Governance as stipulated in Clause 49 is annexed to this report. leverage of prospective customers and their repayment track record. Additionally, the Microfinance Institutions Network (MFIN) has brscribed a code of conduct that provides guidelines for MFI operations and greater uniformity in their functioning. Risk & Concerns The Company is exposed to financial, operational and political risks. Because an MFI"s loan portfolio is its most valuable asset, the financial risks i.e. credit, market and liquidity arc of greatest conccm. Financial risks begin with the possibility that a borrower may no: pay the loan on time with interest (credit risk). They include the possibility that the MFI might lose a significant part of the vdue of its loan portfolio as a result of an economic downturn, hyperinflation, and other externally generated causes (market nsk). Financial risk can also include changes in interest rates of government lending programs or the possible enforcement of laws. Market risks include lower prices for borrowers' products and services, which could directly affect their ability or willingness to repay an outstanding loan. MFIs should be particularly aware of liquidity risk the lack or shortage of funds for current and future expenses or owns. Liquidity risk can result from an overly aggressive lending strategy, low levels of on-time payment and seasonal variat ions of demand or unanticipated expenses. To brpare for these risks, Company usually hold in reserve certain percent of assets in cash and in short-term assets. The Company maintain reserves and provisions in its financials for meeting expectcd or unexpected future contingencies. The Company follows a cousci vati vc filiaucial appioacli by following pi udcut business and iisk maiugcnicnl piactitcs . Adequacy of internal controls The Company has proper and adequate internal controls systems to ensure that all activities are monitored and controlled against any unauthorised use or disposition of assets, misappropriation of funds and to ensure that all the transactions are authorized, recorded, reported and monitored correctly. For the purpose of correctness and accuracy the process of job rotation is followed in different departments. The Company has adequate working infrastructure having computerization in all its operations including accounts and MIS. The Company has established an Audit Committee to review and strengthen the adequacy of internal control. The internal auditors of the Company concoct audit of various departments based on an annual audit plan covering key area of operations and reviews and evaluates the adequacy and effectiveness of internal controls, ensuring adherence to operating guidelines and systems and recommending improvements for strengthening them. Human Resource Development The Company has young, capable, experienced and dedicated manpower and various professionals support from in house and external sources w.th expertise in different areas leading the growth of Company towards better operational and financial position. The number o f employee* as at 31st March, 2015 stood a t 1788 (Previous Yeu-1243). DEPOSITS The Reserve Bank of India in exereisc of its powers under The Reserve Bank of India Act, 1934, has granted NBFC-MFI (Serial No. B-14.01394) status to the Company and the Company has no public deposit. The Board of Directors of the Company has passed a resolution that the Company will not accept public deposit during 2015-16. RESERVE BANK OF INDIA-REGISTRATION AND DIRECTIONS Your Company has been following all relevant guidelines issued by Reserve Bank of India from time to time. The Company has decided not to accept the public deposits with effect from 20" November, 2004. The Company had intimated the same to Reserve Bank of India. Further, your Company has Capital Adequacy Ratio of 15.67% as on 31" March. 2015. The Reserve Bank of India on 27° November, 2014 issued Guidelines for Licensing of Small Finance Banks in the Private Sector. The object of Small Finance Banks shall be to primarily undertake basic banking activities of acceptance of deposits and lending to unnerved and undeserved sections including small business units, small and marginal farmers, micro and small industries and unorganized sector entities by provision of savings vehicles. There will not be any restriction in the area of operations of small finance banks. The small finance bank will be subject to all prudential norms and regulations of RBI as applicable to existing commercial banks including requirement of maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). In pursuance to aforesaid guidelines the Company on 24° January. 20.5 has applied with Reserve Bank of India for a License to jperate as 'Small Finance Bank'. CORPORATE GOVERNANCE As required under Clause 49 (X) of the Listing Agreement entered into by the Company with the Stock Exchanges, a detailed report on corporate governance has been provided in a separate section which forms part of this annual report. The Company has complied with the requirements of Corporate Governance that have to be made in this regard. The requisite certificate from M/s A. K. Gangaher & Co., the statutoiy auditors of the company regarding compliance with the conditions of Corporate Governance as stipulated in Clause 49 is annexed to this report. PARTICULARS OF EMPLOYEES In terms of Section 197(12) of the Companies Act, 2013 read with Rule 5, Sub-Rule (1), (2) & (3) of Companies (Appointment & Remuneration) Rules. 2014. the necessary disclosures are annexed as Annexure IV with this report. LISTING WITH STOCK EXCHANGES Equity Shares of your Company were listed on Delhi Stock Exchange Limited, Ludhiana Stock Exchange Limited and Jaipur Stock Exchange Limited Securities and Exchange Board of India (SEBI) has derccogniscd all the three exchanges during the financial year 2014-15. The Board of Directors of the Company vide its meeting held on 26" May, 2014 approved the proposal of filing of application with BSE Limited in the interest of all stakeholders of the Company and filed the application on 3(r May, 2014.The application is still pending. Further, in order to protect the interests of Shareholders and allotment of further shares, the Board of Directors of the Company has on 30" March. 2015, approved the decision of applying for listing of the equity shares of the Company with the Calcutta Stock Exchange Limited. The Company has also applied for listing of equity shares of the Company with National Stock Exchange of India Limited. The Non-Convertible Debentures issued by the Company are listed on BSE Limited. Your Company ha* no dues pending with the above said Stock Exchanges. EXTRACT OF ANNUAL RETURN In terms of requirement made under Section 92 and Section 134(3)(a) of tht Companies Act, 2013 read with applicable rules of The Companies (Accounts) Rules, 2014, extract of annual return forms part of this Directors' Report and annexed as Annexure V. OTHER INFORMATION Information pursumt to section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3XA)(B) of the Companies Accounts), Rules,2014 Particulars on Conservation of Energy, Technology Absorption Being into the business of Non-Banking Financial Business activities, provision pertaining to conservation of energy, technology absorption are not applicable ACKNOWLEDGEMENTS Your Directors would like to place on record their gratitude for the cooperation received from lenders, our valued customers and shareholders. The Board, in specific, wishes to place on record its sincere apbrciation of the contribution made by all the employees towards growth of he Company. For and on behalf of the Board of Directors Place: Delhi (H P Singh) Dated: 25th May, 2015 Chairman cum Managing Director |