SKS Microfinance Ltd


BSE: 533228 | NSE: SKSMICRO | ISIN: INE180K01011 
Market Cap: [Rs.Cr.] 3,564 | Face Value: [Rs.] 10
Industry: Finance & Investments

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Director's Report

Directors

Dear Members,

Your Directors have pleasure in presenting the Tenth Annual Report of your Companytogether with the audited statement of accounts for the year ended March 31, 2013.

REVIVAL OF THE MFI SECTOR

FY13 has been a momentous year for the MFI industry in India, particularly so for yourCompany due to the following significant changes:

1. Investors are beginning to return to the microfinance sector. Ten investors,domestic as well as foreign, have invested approximately Rs. 869 crore in the sector inFY13, according to The Economic Times

2. The pan-India Gross Loan Portfolio (GLP) for the MFI industry grew by 23% to Rs.21,245 crore in FY13 as compared to Rs. 17,264 core in FY12, when there was a 14% degrowth(Rs. 20,000 crore in FY10-11). Loan disbursals during FY13 increased by 13% to Rs. 23,209crore from Rs. 20,613 crore in FY12, when there was a degrowth of 36% (Rs. 32,418 in FY11)

3. Total debt funding to the MFI industry increased by 79% to Rs. 10,203 crore in FY13from Rs. 5,713 crore in FY12

4. Average loan amount disbursed on a pan-India basis remained below Rs. 15,000

5. The productivity ratios in the industry continued to improve in FY13 (Source -Points 2 to 5: MFIN Micrometer 2013)

MORE CONDUCIVE REGULATORY ENVIRONMENT

The Reserve Bank of India (RBI) has further strengthened the regulatory framework forNon-Banking Finance Companies-Microfinance Institutions (NBFC-MFIs) vide notificationsdated August 3, 2012 and May 31, 2013 when the following dispensations were announced:

a. In December 2011, the RBI announced the creation of a separate category ofNon-Banking Financial Companies, namely Non-Banking Financial Company-Micro FinanceInstitutions (NBFC-MFIs). RBI has issued guidelines for the classification of existingNBFC as an NBFC-MFI. Your Company has adopted several aspects of the new regulatoryframework and has applied for its re-classification as an NBFC-MFI. The application iscurrently under consideration of the RBI

b. NBFC-MFIs are required to maintain not less than 85% (earlier 90%) of their netassets as Qualifying Assets and, in this regard, only the assets originating on or afterJanuary 1, 2012 will have to comply with the Qualifying Assets criteria

c. NBFC-MFIs are also required to ensure that the aggregate amount of loans given forincome generation activities should constitute at least 70% of an MFI’s total loans,which prior to the notification was at 75%. Members of an SHG (Self Help Group) or a JLG(Joint Liability Group) as well as new clients can borrow from NBFC-MFIs. However, amember of an SHG or a JLG cannot borrow from more than two MFIs at a time

d. 100% of the provisions made towards the Andhra Pradesh portfolio as on March 31,2013 is to be notionally reckoned as part of Net Owned Fund (NOF) for calculating theCapital to Risk (weighted) Assets Ratio (CRAR) and is to be progressively reduced, equallyover a period of 5 years, that is, 20% each year upto March 2018

e. All NBFCs, irrespective of their size, are subjected to a margin cap of 12% tillMarch 31, 2014. However, with effect from April 1, 2014 margin caps may not exceed 10% forlarge MFIs (that is, loan portfolios exceeding Rs. 100 crore) and 12% for others. Withthis requirement, your Company has been effectively given a transition period of two yearsto comply with the margin cap of 10%

The MFI Bill 2012

In July 2011, the Central Government released a Draft of the Micro Finance Institutions(Development and Regulation) Bill ("MFI Bill") for public comments.Subsequently, on May 22, 2012 the Micro Finance Institutions (Development and Regulation)Bill, 2012 was tabled in Parliament. The MFI Bill 2012 will require the approval of theIndian Parliament as well as the assent of the President of India and publication in theOfficial Gazette before becoming a law. The MFI Bill 2012 states that its provisions shallbe effective notwithstanding anything inconsistent contained in any other law. The MFIBill, once passed, will provide for the development and regulation of microfinanceinstitutions in facilitating access to credit, thrift and other microfinance services tothe rural and urban economically weaker sections and promote financial inclusion. TheParliament of India has referred the MFI Bill to the Standing Committee for Finance,headed by former Union Finance Minister, Mr. Yashwant Sinha, for its recommendations. TheCommittee is yet to submit its report.

CONSOLIDATION IN THE SECTOR AND YOUR COMPANY

Consolidation in the MFI sector has been caused by the following:

• Large Andhra Pradesh MFIs have opted for Corporate Debt Restructuring (CDR)

• Many small and medium sized MFIs are under pressure on account of reduced creditavailability

• Small and medium MFIs are not in a position to comply with enhanced supervisorystandards

By deciding not to take the CDR route and by sustaining your Company’s turnaroundwith a higher profit of Rs. 2.7 crore in Q4-FY13 as compared to a profit of Rs. 1.2 crorein Q3-FY13, when your Company turned around after seven consecutive quarters of losses,your Company is poised to reap the fruits of consolidation.

YOUR COMPANY

Your Company continues to be one of the largest microfinance institutions (MFIs) inIndia in terms of the total value of loans outstanding and the number of borrowers, as ofMarch 31, 2013 and the only listed MFI in India.

FINANCIAL HIGHLIGHTS

The financial performance of your Company for the fiscal year ended March 31, 2013 issummarized in the following table:

(Rs. in crore)

Year ended March 31 2013 2012
Total revenue 352.6 472.3
Less: Total expenditure 649.7 1,796.1
Profit (Loss) Before Tax (297.1) (1,323.7)
Profit (Loss) After Tax (297.1) (1,360.6)
Surplus brought forward (1,051.3) 309.3
Amount available for appropriation - -
Appropriation has been made as under:
Transfer to Statutory Reserve - -
Surplus carried to Balance Sheet (1,348.4) (1,051.3)
Earnings Per Share (EPS) (30.55) (188.06)
Diluted EPS (30.55) (188.06)

- Your Company’s total revenue for the year ended March 31, 2013 has recorded areduction of 25.4% from Rs. 472.3 crore in FY12 to Rs. 352.6 crore in FY13

- Net loss declined from Rs. 1,360.6 crore in the previous year to Rs. 297.1 crore inFY13

The increasing growth momentum in non-Andhra Pradesh states has helped your Company inreporting a lower operating loss (excluding Andhra Pradesh provisioning) of Rs. 297 crorein FY13 as compared to a loss of Rs. 1,360.6 crore in FY12. In FY13, your Company’sAndhra Pradesh portfolio reduced to a nil from a high of Rs. 1,491 crore at the start ofthe Andhra Pradesh microfinance situation in October 2010. With this last and finalprovisioning towards the Andhra Pradesh exposure, your Company looks beyond the AndhraPradesh microfinance situation.

OPERATIONAL HIGHLIGHTS

The following table summarizes the operational performance of your Company for the yearended March 31, 2013:

Year ended March 31 2013 2012 Percentage change
Number of branches 1,261 1,461 (13.7)
Number of members (in lakh) 50.2 53.5 (6.1)
Number of employees 10,809 16,194 (33.3)
Amount disbursed (Rs. in crore) 3,320 2,737 21.3
Portfolio outstanding (Rs. in crore) 2,359 1,669 41.3

During the period under review, your Company’s member base decreased by 6.1% to50.2 lakh (5.02 million) as compared to 53.5 lakh (5.35 million) for the previous year,which was primarily due to the consolidation of branches and closure of non-profitablebranches.

However, loan disbursement increased by 21.3% from Rs. 2,737 crore to Rs. 3,320 crore.Your Company has closed or merged 200 branches as part of its business rationalizationpolicy.

TURNAROUND IN FY13

Your Company sustained its turnaround with a higher profit of Rs. 2.7 crore in Q4-FY13as compared to a profit of Rs. 1.2 crore in Q3-FY13, when it turned around after sevenconsecutive quarters of losses caused by the external event, namely the Andhra Pradeshmicrofinance situation.

Your Company could improve profitability on account of robust growth in assets with thecore interest income in non-Andhra Pradesh states increasing by 15% to Rs. 90 crore inQ4-FY13 from Rs. 78 crore in Q3-FY13. Your Company’s loan disbursements rose by 65%to Rs. 1,295 crore in Q4-FY13 from Rs. 784 crore in Q3-FY13 while incremental drawdownsregistered a 201% jump to Rs. 1,704 crore in Q4-FY13 from Rs. 566 crore in Q3-FY13(year-on-year increase of 94% to Rs. 2,875 crore in FY13 from Rs. 1,484 crore in FY12).The non-Andhra Pradesh loan portfolio outstanding increased by 35% to Rs. 2,016 crore inQ4-FY13 from Rs. 1,496 crore in Q3-FY13.

Your Company’s cost of interest-bearing liabilities has come down significantly to12.5% in FY13 from 13.4% in FY12 while collection efficiency in non-AP states has furtherimproved to 99.1% in FY13 as compared to 95.4% in FY12.

Your Company’s turnaround strategy had four building blocks -- fully providing forthe Andhra Pradesh exposure, managing the supply-side shock, cost structure optimizationand recapitalization. The strategy helped your Company return to profitability in Q3-FY13,and improve the same in Q4-FY13. With this, your Company’s financial turnaround hasbeen completed and sustained.

Strong capital base, robust liquidity, improved productivity and cost efficienciesshould further accelerate these gains. The debt-equity leveraging improved to 4.1 times inQ4-FY13 from 2.7 times in Q3-FY13 (2.3 in FY12).

UNIQUE STRENGTHS

Your Company continues to be recognized as one of the largest MFIs in India with itsunique achievements and strengths. Among these are:

• Your Company has repaid more than Rs. 8,320 crore to the banking system withouta single day’s delay since the Andhra Pradesh microfinance situation, that is, fromOctober 2010 to March 2013

• Incremental drawdowns in FY13 were Rs. 2,875 crore compared to Rs. 1,484 crorein FY12 (growth of 94% YoY)

• Your Company has grown its non-Andhra Pradesh Portfolio Loan Disbursements by21.3% (YoY) to Rs. 3,320 crore

• Your Company’s collection efficiency in non-AP states continues to berobust at 99.1%

• Your Company has a healthy cash and bank balance of Rs. 895 crore with anetworth of Rs. 390 crore and a strong capital adequacy of 33.9% * (as against the 15%stipulated by the RBI) as of March 31, 2013

• Your Company’s un-availed deferred tax benefit stands at Rs. 555 crorewhich will be available to offset tax on future taxable income. Deferred tax assets willbe recognized on the books upon virtual certainty of future taxable profits supported byconvincing evidence as per AS-22. For Q4-FY13, your Company has posted a net profit of Rs.2.7 crore and, given the carried forward tax loss, no current tax provision is required

• In order to protect members from over-indebtedness, your Company has beenplaying a leading role in pioneering industry-wide efforts on creating and sharingcredit-related information with Credit Bureaus

• Your Company’s policies and processes along with documentation have beenmodified to comply with: 1. RBI guidelines of December 2, 2011; 2. RBI Fair Practice Codeguidelines of July 2, 2012; 3. Guidelines and codes of industry bodies like Sa-Dhan andMFIN

• Mr. Verghese Jacob, a seasoned corporate and social sector expert with threedecades of experience, is your Company’s Ombudsman

• Your Company has commissioned EDA Rural Systems, a reputed development sectorconsultancy, to develop a training programme encompassing the seven principles of CPP(avoidance of over-indebtedness, transparency, responsible pricing, appropriate collectionpractices, ethical staff behaviour, privacy of client data and grievance redressalmechanism) and certify several staff members after imparting train-the-trainer coaching tothem

(*) Capital adequacy without RBI dispensation on Andhra Pradesh provisioning is 20.6%

On account of such distinctions, your Company has been appreciated by key stakeholdersincluding banks and financial institutions. Your Company has completed 12 securitizationtransactions and one asset assignment transaction with eight funding partners aggregatingto Rs. 1,195 crore in FY13. In addition, your Company has raised incremental drawdownsfrom banks and financial and other institutions of Rs. 2,875 crore in FY13 and raisedfresh equity of Rs. 263.5 crore taking the total incremental funding inflow for FY13 toRs. 3,139 crore, which is more than double the Rs. 1,484 crore raised in FY12.

NEW INITIATIVES

1. Mobile Phone Loans

Your Company had conducted a pilot programme for financing the purchase of mobilephones to its members in eight branches of four states. After the success of this pilotwith Universal Digital Connect Limited (UDCL), a subsidiary of Videocon IndustriesLimited, this intiative was extended to seven states in India during FY13. The followingare the features of the mobile business:

• The annual effective interest rate of the Mobile Phone Loans programme is25.51%, the loan processing fee is 0.99% and the tenure of the loan is 25 weeks

• Your Company is paid a processing fee by UDCL

• The price of the mobile phones financed by your Company ranges from Rs. 1,800 toRs. 2,500 (V1544 Model - MRP is Rs. 2,490 while SKS member price is Rs. 2,250)

As of March 31, 2012 and March 31, 2013, Mobile Phone Loans constituted 1.3% and 1.2%respectively, of your Company’s total loan outstanding portfolio.

2. Sangam Store Loans

The Sangam Store business was not commercially viable and hence the same has not beenpursued further.

3. Gold Loans

India is one of the largest consumers of gold in the world due to a strong preferencefor gold jewellery among Indian households and its widespread use as a savings instrument.In FY11, your Company launched a gold loan pilot under the name of"Swarnapushpam" which provided personal or business loans to members in order tomeet their short-term liquidity requirements. These loans are secured by gold jewellery.The pilot was extended to 40 branches, primarily across the states of Karnataka,Maharashtra and Uttar Pradesh. As of March 31, 2013, your Company had 198 employeesservicing these 40 branches. Loan amounts range from Rs. 2,000 to Rs. 1,00,000 which canbe repaid in full at maturity or as bullet payments, or equated monthly/ quarterlyinstalments with a maximum tenure of 12 months, at the option of the borrower. There areno penal or pre-closure charges and borrowers can choose to make partial prepayments. Theannual effective interest rate for gold loans typically varies between 18.5% and 25%, andis determined by the loan-to- value ratio, tenure of the loan and repayment frequency. Assuch, gold loan products do not qualify as micro credit products.

As of March 31, 2013 your Company’s gold loan portfolio stood at Rs. 55.9 crore,which constituted 3.8% of your Company’s total outstanding loan portfolio. The goldloan business has seen encouraging results and makes our diversification foray into securelending. The gold loan business may be operated in future through a subsidiary, based onsuccessful results from the pilot project and receipt of the required regulatoryapprovals.

RESOURCES AND LIQUIDITY

During the year under review, your Company completed 12 securitization transactions andone asset assignment transaction with eight funding partners aggregating Rs. 1,195 crore.Additionally, your Company raised incremental drawdowns from banks and financial and otherinstitutions of Rs. 2,875 crore and fresh equity of Rs. 263.5 crore taking the totalincremental funding inflow to Rs. 3,139 crore during the financial year ended March 31,2013 which is more than double the Rs. 1,484 crore raised during the financial year endedMarch 31, 2012.

During the year, various instruments used by your Company to raise funds receivedratings, a summary of which is presented in the following table:

Agency Item Rating
CARE Rating MFI Grading MFI 1
CARE Rating Securitization CARE A1+ (SO) *
CARE Rating Securitization CARE A+ (SO) #

* Rating for 10 transactions

# Rating for 2 transactions

"MFI 1" Grading is the highest obtainable MFI Grading on an eight pointscale, "MFI 1" being the highest and "MFI 5" being the lowest. MFIGrading is a measure of overall performance on parameters of transparency, operationalsetup, scale of operations and sustainability.

A Securitization rating of "A1+ (SO)" is considered to indicate a very strongdegree of safety regarding timely payment of short-term debt obligations and carries thelowest credit risk while a rating of "A+ (SO)" is considered to indicate a highdegree of safety regarding timely servicing of long-term debt obligations and carries alow credit risk.

QUALIFIED INSTITUTIONAL PLACEMENT AND PREFERENTIAL ALLOTMENT

During the year under review, your Company successfully completed a QualifiedInstitutional Placement (QIP) of Rs. 230 crore in July 2012 and a Preferential Issue ofRs. 33.5 crore in August 2012.

Key highlights of the QIP and Preferential Allotments are:

• The first QIP in the financial services sector in FY13

• The QIP and the Preferential Allotment enabled your Company to raise the largestamount of capital in the microfinance sector post your Company’s IPO in August 2010

• The QIP, which was launched with an issue size of Rs. 165 crore (approximate),was oversubscribed with your Company receiving applications/ bids for Rs. 230 crore(approximate)

• Floor price of Rs. 75.4

The overwhelming response to the QIP validated the important role of microfinance inachieving financial inclusion in India. The proceeds from the QIP and the PreferentialAllotment (Rs. 230 crore and Rs. 33.50 crore respectively) aggregating Rs. 263.50 crore,brought in the much-needed growth capital for your Company.

The Joint Global Coordinators and Book Runners to the QIP, which was launched on July12, 2012 and closed on July 17, 2012, were: Credit Suisse Securities (India) PrivateLimited and Yes Bank Limited.

The QIP helped your Company to strengthen its leadership position and improved theprospects of the MFI sector as a whole. Most importantly, the QIP enabled your Company tomeet the credit requirements of 4 million rural borrowers who were directly affected bythe MFI situation.

INCREASE IN SHARE CAPITAL

During the year under review, 9,07,734 equity shares were issued under yourCompany’s ESOP plans. Additionally, your Company concluded a QIP of 3,04,98,069Equity Shares to Qualified Institutional Buyers at a price of Rs. 75.40 per Equity Shareand a Preferential Allotment of 44,50,000 Equity Shares to Kumaon Investment Holdings, awholly owned subsidiary of one of the Promoters,

WestBridge Ventures II LLC, at a price of Rs. 75.40 per Equity Share both, inaccordance with the provisions of the Securities and

Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations,2009. Thus, the issued, subscribed and paid-up equity share capital increased from Rs.72.36 crore to Rs. 108.21 crore as on March 31, 2013.

Details of allotments during FY13 are hereunder:

- 9,06,734 Equity Shares were issued under ESOP 2007 on May 4, 2012

- 3,04,98,069 Equity Shares were issued through a Qualified Institutional Placement(QIP) on July 19, 2012 under Chapter VIII of the SEBI (Issue of Capital and DisclosureRequirements) Regulations, 2009

- 44,50,000 Equity Shares were issued to Kumaon Investment Holdings, a wholly ownedsubsidiary of WestBridge Ventures

II, LLC, one of the promoters of your Company, through a Preferential Issue on August23, 2012 under Chapter VII of the SEBI (Issue of Capital and Disclosure Requirements)Regulations, 2009

- 1,000 Equity Shares were issued under ESOP (ID) 2008 on December 27, 2012

DIVIDEND

Your Directors have not recommended any dividend as your Company reported losses duringthe year under review.

SHIFTING OF THE REGISTERED OFFICE FROM ANDHRA PRADESH TO MAHARASHTRA

The Shareholders vide special resolution dated August 27, 2012, passed through postalballot, approved the shifting of the Registered Office from Andhra Pradesh to Maharashtra,by amendment to the Situation Clause of the Memorandum of Association of your Company.

Your Company is in the process of obtaining the necessary statutory approvals forshifting the Registered Office of your Company to Maharashtra.

MANAGEMENT DISCUSSION AND ANALYSIS

The Management Discussion and Analysis Report for the year under review is presented ina separate section on Page 36 in this Annual Report.

CORPORATE GOVERNANCE

Your Company has adopted best corporate practices and is committed to conducting itsbusiness in accordance with the applicable laws, rules and regulations. Your Companyfollows the highest standards of business ethics. A report on Corporate Governance isprovided on Page 50 in this Annual Report.

FIXED DEPOSITS

Your Company has not accepted any fixed deposits and, as such, no amount of principalor interest was outstanding as on the date of the Balance Sheet.

REGULATORY UPDATE

1. Capital Adequacy Requirements

Your Company, being a Systemically Important Non-Deposit Accepting NBFC, is subject tocapital adequacy requirements prescribed by the RBI. Your Company has to maintain aminimum ratio of 15% as prescribed under the Non-Banking Financial (Non-Deposit Acceptingor Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 (as amended fromtime to time) based on the total Capital to Risk (weighted) Assets Ratio (CRAR).

Your Company maintained a CRAR of 33.9% and 35.4% respectively as on March 31, 2013 andMarch 31, 2012 which is higher than the statutory 15% requirement.

The modifications to the NBFC-MFI directives issued by the RBI vide its Circular No.RBI/2012-13/161 DNBS (PD) CC.No.300 /03.10.038/2012-13, dated August 3, 2012 havespecified that provision made towards portfolio in Andhra Pradesh should be in accordancewith extant NBFC prudential norms and such provision could be added back notionally to theNet Owned Fund (NOF) for the purpose of calculation of the CRAR and would be progressivelyreduced by 20% each year, over 5 years, that is, from March 31, 2013 to March 31, 2017.Accordingly, the CRAR as at March 31, 2013 was 33.9%, after adding back the provisiontowards the portfolio in Andhra Pradesh of Rs. 257.63 crore to the NOF. Had the amount ofprovision, mentioned above, not been added back to the NOF, the CRAR as at March 31, 2013would have been 20.65%. Your Company has taken cognizance of the specific dispensationgranted by the RBI.

2. NBFC-MFI Classification

The RBI vide its circular DNBS.CC.PD.No. 312 /03.10.01/2012-13, dated December 07, 2012issued a checklist of documents to be submitted along with the application for seeking aCertificate of Registration from the RBI with regard to the re-classification of existingNBFCs as NBFC-MFIs.

Your Company has accordingly submitted its application along with the supportingdocuments as per the aforesaid circular to the RBI in support of its application seekingits re-classification as an NBFC-MFI. The application is currently being processed by theHyderabad Regional Office of the RBI.

3. Monitoring of Frauds

The RBI, vide its circular DNBS.PD.CC. No. 256 /03.10.042 / 2011-12, dated March 2,2012 has extended the monitoring of frauds in deposit-taking NBFCs to include allNBFCs-ND-SI with effect from March 2, 2012.

Accordingly, your Company has reported cases of fraud in compliance with the saidcircular.

4. Fair Practices Code

The RBI on February 18, 2013 amended the Fair Practices Code for all NBFCs includingMFIs and Gold Loan companies, requiring NBFCs to lay down an appropriate grievanceredressal mechanism within their organization to resolve disputes between the company andits customers. The mechanism is to ensure that all disputes arising out of the decisionsof lending institutions’ functionaries are heard and disposed of at least at the nexthigher level.

At the operational level, all NBFCs are required to display prominently details oftheir company’s grievance redressal officer, including details of the local office ofthe RBI at their branches and other places of business, for the benefit of theircustomers.

Your Company has revised the Code of Conduct along with relevant policies in line withthe RBI’s amended Fair Practices Code for NBFCs and the details of its grievanceredressal officer and the local office of the RBI, have been displayed at its branches.

CREDIT INFORMATION BUREAU FOR MFIs

In order to address the issue of multiple lending or over-indebtedness, a number ofNBFC-MFIs have been submitting information to Credit Information Bureaus (CIBs) approvedby the RBI viz., High Mark Credit Information Services Private Limited and Equifax CreditInformation Services Private Limited. Your Company is a member of both these CIBs and hasbeen regularly submitting information to them and utilizing their reports in lendingdecisions. As the number of MFIs submitting information with CIBs increases, the trend ishelping build awareness about the perils of over-indebtedness amongst borrowers who areincreasingly accepting the usage of Credit Bureaus in the lending process.

CUSTOMER GRIEVANCE REDRESSAL

Your Company’s toll-free Customer Service Helpline (1800 300 10000) has beenoperational since July 6, 2009. Since then, the Helpline has been expanded gradually,offering services in seven Indian languages, namely Bengali, Hindi, Kannada, Malayalam,Marathi, Odiya and Telugu.

In October 2012, your Company’s Customer Grievance Redressal (CGR) system wasrevamped. It now features a three-level mechanism in tune with RBI guidelines and SKSMicrofinance Limited’s policy of providing all possible services including grievanceredressal at the grassroots level in a transparent manner. The three levels are: 1.Reporting grievance to the Sangam Manager at the Centre Meeting; 2. A toll-free CustomerService Helpline in seven Indian languages from 7:30 am to 9:00 pm for reportinggrievances directly to the Head Office; 3. A toll-free Ombudsman line (1800 300 60000) forreporting grievance to an independent Ombudsman.

The highlights of the CGR are:

• The field staff received special CGR training for the implementation of thethree-step process from July 16 to July 31, 2012

• 95.3% of the Sangam Member base were given special CGR training on thethree-step process

• Policy aimed at protecting client data privacy has been implemented

• Customer grievance resolution of 99% within the promised turnaround time

INFORMATION TECHNOLOGY

Technology combined with innovation and business process change brings in the greatestreturn. Pursuing this line, your Company is focused on advanced technology solutions thatdrive it to exponential growth through the following:

• Building a secured private cloud to connect all SKS branches

• Developed a robust system to extract daily incremental data from branches andprovide extensive reporting capability

• Provided enhanced communication to branches via e-mail and corporate intranet

• Developed several add-on products to support new business initiatives such as anenterprise application for the Gold Loan business and an in-house satellite doorstepproduct

• Leveraged virtualization technologies to optimize infrastructure

HUMAN RESOURCE MANAGEMENT

Human Resource Development is focused on and aligned to business imperatives with anemphasis on organizational performance improvement and culture-building through athree-year rolling HR roadmap. The key components of the roadmap are – employeeengagement, resourcing, performance management, IT enablement, virtual delivery ofservices, people capability building, business continuity through succession planning andorganization building.

Your Company continues to strengthen its internal Human Resources processes byinvesting in standardization, optimization, automation and periodic audit of its coreprocesses. Pursuing this, an enterprise-wide Human Resource Management System (HRMS) ERPhas been rolled out during the year. It was named "SPARK - System for People Actions,Rewards and Knowledge" enabling the function to achieve operational efficiency andbuild scalability. This is an important milestone as this is one of the steps in achievingconsistent and real-time delivery of all HR processes across the country. The performancemanagement system has been streamlined across levels and efforts are underway in providingperiodic dashboards for every level.

In order to achieve capability, maturity and benchmarking of the processes, thefunction has embarked on the journey of People Capability Maturity Model (PCMM) alignmentand carved out a roadmap for certification. Learning & Development (L&D) wasleveraged fully for the functional competencies for all roles in the field. Competencyassessment and development through various training programmes have improved the deliverycapability of field staff. Talent review framework was further strengthened during theyear as part of the talent management process, improving the rigour in identifyingpotential and providing individual development plans.

Even during the difficult periods of transition, your Company has been successful inretaining its key talent ensuring business continuity. Your Company continues to leverageits unique practices in individual care, nurturing, capability building and growth –as key levers of retention.

As on March 31, 2013 your Company had 10,809 employees on its rolls.

EMPLOYEE STOCK OPTION PLAN (ESOP) AND EMPLOYEE SHARE PURCHASE SCHEME (ESPS)

Presently, employee stock options have been granted or shares have been issued underthe following schemes:

A. SKS Microfinance Employee Share Purchase Scheme 2007 ("ESPS 2007")

B. SKS Microfinance Employee Stock Option Plan 2007 ("ESOP 2007")

C. SKS Microfinance Employee Stock Option Plan 2008 (Independent Directors) ("ESOP2008 (ID)")

D. SKS Microfinance Employee Stock Option Plan 2008 ("ESOP 2008")

E. SKS Microfinance Employee Stock Option Plan 2009 ("ESOP 2009")

F. SKS Microfinance Employee Stock Option Plan 2010 ("ESOP 2010")

G. SKS Microfinance Employee Stock Option Plan 2011 ("ESOP 2011")

The disclosures with respect to each of the above-mentioned Employee Share PurchaseSchemes (ESPS) and Employee Stock Option Plans (ESOP), as required by the Securities andExchange Board of India (SEBI) (Employee Stock Option Scheme and Employee Stock PurchaseScheme), Guidelines, 1999, are appended as Annexure - 1 and form part of this report.

PARTICULARS OF EMPLOYEES

Pursuant to the provisions of Section 217 (2A) of the Companies Act, 1956 read with theCompanies (Particulars of Employees) Rules, 1975 as amended, the names and otherparticulars of employees are set out in Annexure - 2 to the Directors’ Report.

DIRECTORS

The following are the changes that have taken place in your Company’sdirectorship, during the year under review:

1. Mr. P. Krishnamurthy has been appointed as "Nominee Director" on the Boardof your Company with effect from July 25, 2012 by Small Industries Development Bank ofIndia (SIDBI) replacing Mr. V. Chandrasekaran as its nominee. Mr. Krishnamurthy has servedas the Chief General Manager of the RBI

2. Mrs. Ranjana Kumar has been appointed as an "Independent Director" on theBoard of your Company with effect from March 8, 2013 to hold office upto the date of theensuing Annual General Meeting. Mrs. Kumar has served as the Chairperson and ManagingDirector of Indian Bank and Chairperson of National Bank for Agriculture and RuralDevelopment (NABARD). She has also held a constitutional post of Vigilance Commissioner inthe Central Vigilance Commission

Mrs. Ranjana Kumar, being Additional Director, appointed under Section 260 of theCompanies Act, 1956 holds the office upto the date of the ensuing Annual General Meeting.Your Company has received a notice from a member along with a deposit as required underSection 257 of the Companies Act, 1956 proposing the candidature of Mrs. Ranjana Kumar forthe office of a Director of your Company.

Dr. Tarun Khanna and Mr. Geoffrey Tanner Woolley are due to retire by rotation and areeligible to offer themselves for re-appointment in the ensuing Tenth Annual GeneralMeeting.

A brief profile of the Directors proposed to be appointed/ re-appointed would be givenin the Notice of the Tenth Annual General Meeting.

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 217 (2AA) of the Companies Act, 1956, yourDirectors’ confirm as under:

i) In the preparation of the annual accounts, the applicable accounting standards readwith requirements set out under Schedule VI to the Companies Act, 1956 have been followedand there are no material departures from the same

ii) Your Company has selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of your Company at the end of the financial year and ofthe profit of your Company for that year

iii) Your Company has taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act, 1956 forsafeguarding the assets of your Company and for preventing and detecting fraud and otherirregularities

iv) Your Company has prepared the annual accounts of your Company on a ‘goingconcern’ basis

AUDITORS

The Statutory Auditors of your Company, M/s. S.R. Batliboi & Co., CharteredAccountants vide their letter dated April 4, 2013 have informed your Company about theconversion of S.R. Batliboi & Co. into a limited liability partnership under the nameS.R. Batliboi & Co. LLP, pursuant to the Limited Liability Partnership Act, 2008 witheffect from April 1, 2013. The details of conversion and change in name have been taken onrecord by the Board of Directors of your Company at its Board Meeting held on May 8, 2013.

The Statutory Auditors of your Company, M/s. S.R. Batliboi & Co. LLP, CharteredAccountants, Mumbai, retire at the ensuing Tenth Annual General Meeting and have confirmedtheir eligibility and willingness to accept the office of the Auditors, if re-appointed.The Audit Committee and the Board of Directors have recommended re-appointment of M/s.S.R. Batliboi & Co. LLP, Chartered Accountants as the Statutory Auditors of yourCompany for FY14 for your approval.

RESPONSE OF THE BOARD TO THE AUDITORS’ COMMENTS

In terms of the provisions of Section 217(3) of the Companies Act, 1956 the Board wouldlike to place on record an explanation to the Auditors’ comments in their AuditReport dated May 8, 2013:

Auditors’ Comments Response
1. The Company’s accumu- lated losses at the end of the financial year are more than fifty percent of its net worth and it has incurred cash losses in the current financial and immediately preceding financial year. During FY13, your Company had incurred a net loss of Rs. 297.1 crore compared to Rs. 1,360.6 crore in FY12, largely due to write-offs and provisioning on the Andhra Pradesh portfolio. However, your Company has reported profits for the quarters ended December 31, 2012 and March 31, 2013 after seven consecutive quarters of losses, due to the impact of the Andhra Pradesh microfinance situation, on the field operations in Andhra Pradesh. Your Company has fully written off/ provided for loans outstanding in the state during FY12 and FY13. With this, your Company has fully provided for its exposure in Andhra Pradesh. The total provisions and write-offs of Rs. 1,238.2 crore on the AP portfolio during FY12 and FY13 have contributed primarily to the losses reported by your Company in the current and immediately preceding financial year. Notably, the total provisions and write-offs of Rs. 1,417.9 crore made during FY12 and FY13 exceed the accumulated losses of Rs. 1,348.4 crore at the end of the financial year. Your Company has a strong net worth of Rs. 390.4 crore even after adjusting the accumulated losses and its capital adequacy is 33.9% (capital adequacy without RBI dispensation on AP provisioning is 20.6%) as on March 31, 2013.
With regulatory clarity and resumption of bank lending to the MFI sector albeit selectively, your Com- pany obtained incremental drawdowns (including securitizations and assignments) of Rs. 2,874.7 crore in FY13 which is nearly double of Rs. 1,484.5 crore obtained in FY12. This aided higher dis- bursements and your Company registered a growth of 52.7% in the loan portfolio in states other than AP during FY13 from Rs. 1,320 crore as on March 31, 2012 to Rs. 2,015.5 crore as on March 31, 2013.
However, there was a reduction in average non-AP gross portfolio outstanding for FY13 which resulted in lower revenue and cash losses in FY13. Cost control measures like consolidation of branches and headcount rationalization, initiated by your Company in FY13, resulted in a decline of 35% in operating expenses. Your Company expects that robust growth in the loan portfolio in states other than AP, aided by higher levels of funding and cost optimization initiatives undertaken by your Company, will drive future earnings and profitability.
2. We have been informed that during the year there were instances of cash embezzlements by the employees of the Com- pany aggregating Rs. 1,27,62,403; loans given to non-existent borrowers on the basis of fictitious documentation created by the employees of the Company aggregating Rs. 83,32,870; and misap- propriation of cash by an external party amount- ing to Rs. 4,55,000. As informed, investigations are in progress and the services of such employ- ees involved have been terminated and the Com- pany is in the process of taking legal action. The outstanding balance (net of recovery) aggregating Rs. 1,84,03,555 has been written off. Fraud is an inherent risk in the business your Company operates in, since all the transactions are cash-based in the last mile.
In case of cash embezzlements, your Company has recovered an amount of Rs. 17,43,054 including the insurance cover.
Cash embezzlement is 0.04% of disbursement during the year.
To mitigate this risk to a large extent, the management has put in place several preventive control measures as under:
- Procuring indemnity bond from every field staff, with personal guarantee of a third person
- Every bank transaction (deposit/ withdrawal) is to be executed by a minimum of two employees, comprising a bank signatory and a confirmed staff
- The strongbox at every branch is controlled by two keys held by two different employees in the branch
- Managerial staff conduct surprise visits at hours when employees are engaged in cash/ bank transactions
- Minimizing the cash balances at various branches to the lowest level possible (Rs. 20,000 + cash required for next day disbursement)
There are also several detective controls, as follows:
- Daily employee-wise reconciliations of cash balances by managerial employees at each branch
- Frequent surprise visits by accountants and internal auditors, including verification of physical cash and bank balances
The following is the action taken in cases pertaining to fraud:
- Termination of service of all employees involved in cash embezzlements
- Appropriate legal action pursued against errant employees
- Recovering embezzled money from fraudulent employees
- Fidelity insurance to minimize the losses against cash embezzlements
In the case of loans given to non-existent/ fictitious borrowers, your Company has recovered an amount of Rs. 9,48,664 in such cases including the insurance cover. These cases constitute 0.03% of disbursement during the year.
The following are the various preventive/ control measures included in the loan process to mitigate the risk of loans to non-existent borrowers/ fictitious borrowers:
- All the loans disbursed pass through a checker control system, wherein loans processed by a sangam manager are first approved by a branch manager or an assistant branch manager
- In order to prevent collusion with the locals, sangam managers are deployed away from their home towns
- Half yearly employee rotation ensures that sangam managers manage different centres at the end of every six months
- Sangam managers are regularly transferred in a span of nine months
- Development of internal processes to restrict loan disbursements to inactive members
The following are further details of preventive detective controls at your Company:
- Managerial employees at the branch perform a Loan Utilization Check (LUC) for every loan disbursed
- The internal audit staff, on a test basis, verifies loan documents and performs random LUCs for loans disbursed
The net impact of frauds comes to around 0.06% (vis--vis 0.51%) of the total amount disbursed by your Company during FY13. Your Company is working towards further reducing this percentage by making process improvements, obtaining adequate insurance cover and by increasing engagements and opportunities for direct contact with members. During the year under review, your Company has recovered an amount of Rs. 1.4 crore against a fraud amount written off in previous years.

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS & OUTGO

The particulars required to be furnished under sub section (1) (e) of Section 217 ofthe Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Reportof Board of Directors) Rules, 1988 are set out in the Annexure – 3 to this report.

GREEN INITIATIVES

During the preceding financial year, your Company started a sustainability initiativewith the aim of going green and minimizing the environmental impact of our work. This yeartoo, your Company has published an e-Version of the Annual Report, prepared in compliancewith the provisions of the Companies Act, 1956 and the Listing Agreement.

INTELLECTUAL PROPERTY

Your Company has 11 trademarks registered in its name, including the trademarkregistrations for "SKS Microfinance", the composite trademark for"SKS" in English and eight other Indian languages besides the"Swarnapushpam" logo in English. Our trademark registration application for the"Swarnapushpam" logo in Telugu language as well as our application forregistration of a composite trademark for "SKS Microfinance" in the Bengalilanguage are currently pending.

Your Company also has a copyright certification of its anthem song titled "UdhteJaayen Badte Jaayen".

ACKNOWLEDGEMENTS

Your Directors express their sincere appreciation for the cooperation and assistancereceived from sangam members, shareholders, bankers and other stakeholders during the yearunder review. Your Directors also wish to place on record their appreciation for thecontribution made by the employees at all levels during the Andhra Pradesh microfinancesituation and in recording a positive turnaround and growth during FY13.

For and on behalf of the Board of Directors
Place: Hyderabad SD/- SD/-
Date: July 25, 2013 P.H. Ravikumar M.R. Rao
Non-Executive Chairman-Interim Managing Director and CEO

Annexure – 1 to the Directors’ Report

Employee Share Purchase Scheme (ESPS) and Employee Stock Option Plan (ESOP)

The disclosures with respect to your Company’s Employee Share Purchase Scheme(ESPS) and Employee Stock Option Plan (ESOP) are set out hereunder:

A. SKS Microfinance Employee Share Purchase Scheme 2007 (ESPS 2007)

Your Company instituted ESPS 2007 pursuant to a special resolution dated February 9,2007 passed at an EGM of the Company. The ESPS 2007 was implemented by the CompensationCommittee and the SKS Microfinance Employee Welfare Trust (EWT). The EWT was constitutedon March 28, 2007 pursuant to a resolution passed by the Board of Directors dated March 5,2007. The effective date of the ESPS 2007 was March 31, 2007 and it shall be in effecttill March 31, 2020.

Under ESPS 2007, 18,49,750 Equity Shares were issued for the benefit of the eligibleemployees and, in the event an employee is terminated or has resigned from the service ofyour Company, then the unreleased Equity Shares to the said employee stand transferred tothe EWT. The same is used for the other eligible employees of your Company.

The following table sets forth the particulars of the Equity Shares granted under theESPS 2007 as of date:

Particulars Details of Tranche I Details of Tranche II Details of Tranche III
Shares issued 8,18,000 5,14,250 5,17,500
Date of issue March 31, 2007 November 20, 2007 August 25, 2008
Allotment price of share (Rs.) 10.00 49.77 70.67
Person-wise details of shares granted to
i) Directors and key managerial employees Refer below
ii) Any other employee who was allotted Equity Shares amounting to 5% or more of the Equity Shares allotted during the year Not Applicable Not Applicable Not Applicable
iii) Identified employees who were allotted Equity Shares during any one year equal to exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of your Company at the time of allotment Not Applicable Not Applicable Not Applicable
Fully diluted EPS Rs. (30.55) as on March 31, 2013

 

Particulars Details of Tranche I Details of Tranche II Details of Tranche III
Difference between the employee compensation cost us- ing the intrinsic value method and the employee compen- sation cost that shall have been recognized if your Com- pany has used fair value and impact of this difference on profits and EPS of your Company Not Applicable Not Applicable Not Applicable

Details of Equity Shares allotted/ transferred to Directors and key managerialemployees are set forth below:

Name of Director/ Key Number of Equity Shares Date of Allotment/ Transfer
Managerial Personnel
Mr. M.R. Rao * 4,56,666 2,00,000 Equity Shares allotted on March 31, 2007.
1,63,750 Equity Shares allotted on August 25, 2008.
86,250 Equity Shares have been transferred from EWT on August 25, 2008.
6,666 Equity Shares transferred from EWT on July 29, 2009.
Mr. S. Dilli Raj ** 1,02,666 1,00,000 Equity Shares have been transferred from EWT on February 1, 2008.
2,666 Equity Shares transferred from EWT on July 29, 2009.

* Mr. M.R. Rao holds 2,94,166 equity shares as on March 31, 2013.

** Mr. S. Dilli Raj holds 1,27,666 equity shares as on March 31, 2013.

B. SKS Microfinance Employee Stock Option Plan 2007 (ESOP 2007)

Your Company instituted ESOP 2007 pursuant to a special resolution dated September 8,2007 passed at an AGM of your Company and it was further amended pursuant to theresolutions passed through Postal Ballot on December 7, 2011.

The total number of shares (which mean Equity Shares of your Company and securitiesconvertible into Equity Shares) that may be issued under ESOP 2007 is 18,52,158 EquityShares. The ESOP 2007 came into effect on September 8, 2007 and is valid upto September 7,2011 or such other date as may be decided by the Board of Directors. The ESOP 2007 wasimplemented by the Board of Directors and the Compensation Committee. Unless otherwisespecified, the vested options were to be exercised prior to the expiry of 48 months fromthe date of vesting.

Your Company has granted 18,52,158 options convertible into 18,52,158 Equity Shares offace value of Rs. 10 each on various dates as tabulated below and the following table setsforth the particulars of the options granted under ESOP 2007 as on March 31, 2013:

Particulars Details
Options granted 18,52,158
Pricing formula The Exercise Price for the Shares to be issued pursuant to the Exer- cise of an Option shall be such price as is determined by the Com- pensation Committee (and set forth in the SKS Microfinance Stock Option Agreement) based on the Fair Market Value per Share on the date of Grant of the Option but it shall not be lower than the face value of the Equity Shares to be issued.
Date of grant October 15, 2007
Exercise price of options (in Rs.) 49.77
Total options vested 18,52,158
Options exercised * 18,52,158
Total number of Equity Shares that would arise as a result of full exercise of options already granted 18,52,158
Options forfeited/ lapsed/ cancelled -
Variation in terms of options -
Money realized by exercise of options (in Rs.) 9,21,81,904
Options outstanding (in force) -
Person-wise details of options granted to
i) Directors and key managerial employees 18,52,158
ii) Any other employee who received a grant in any one year of op- tions amounting to 5% or more of the options granted during the year -
iii) Identified employees who are granted options during any one year equal to exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of your Company at the time of grant -
Diluted EPS on issue of shares on exercise calculated as per AS 20 Rs. (30.55) as on March 31, 2013
Method of calculation of employee compensation cost Fair Value Method
Weighted average exercise price of options 49.77
Weighted average fair value of options 7.28

The details of ESOP 2007 as on March 31, 2013 have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year - - 9,06,734 49.77
Granted during the year - - - -
Forfeited during the year - - - -
Exercised during the year * - - 9,06,734 49.77
Expired during the year - - - -
Outstanding at the end of the year - - - -
Exercisable at the end of the year - - - -
Weighted average remaining contractual life (in years) - - - -
Weighted average fair value of options granted - - - 7.28

* Notice of exercise received for 9,06,734 options; however, the allotment was pendingas on March 31, 2012. These shares were subsequently allotted on May 4, 2012. The weightedaverage share price on the date of receipt of such notice for exercise was Rs. 214.66.

Details of options granted to Directors and key managerial employees are set forthbelow:

Name of Director/ key managerial personnel Total No. of options granted No. of options exercised Total No. of options outstanding No. of Equity Shares held
Dr. Vikram Akula 18,52,158 18,52,158 - 9,06,734

C. SKS Microfinance Employee Stock Option Plan 2008 (Independent Directors) (ESOP 2008(ID))

The Company instituted ESOP 2008 (ID) pursuant to a special resolution dated January16, 2008 passed at an EGM of the Company. The ESOP 2008 (ID) was amended pursuant to theresolutions passed at EGM held on January 8, 2010 and was further amended pursuant to theresolutions passed through Postal Ballot on December 7, 2011.

The total number of Equity Shares that may be issued under ESOP 2008 (ID) are 1,95,000Equity Shares (as amended, pursuant to a resolution of the shareholders dated January 8,2010). The ESOP 2008 (ID) came into effect on January 16, 2008 and is valid up to January15, 2015 or such other date as may be decided by the Board of Directors. The ESOP 2008(ID) was implemented by the Board of Directors. Unless otherwise specified, the vestedoptions were to be exercised prior to the expiry of 60 months from the date of vesting.

The following table sets forth the particulars of the options granted under the ESOP2008 (ID) as on March 31, 2013:

Particulars Tranche I Tranche II Tranche III Tranche IV Tranche V
Options granted 30,000 15,000 6,000 18,000 90,000
Pricing formula The Exercise Price for the Shares to be issued pursuant to the Exercise of an Option shall be such price as is deter- mined by the Compensation Committee (and set forth in the SKS Microfinance Stock Option Agreement) based on the Fair Market Value per Share on the date of Grant of the Option
Date of Grant February 1, 2008 February 1, 2008 November 10, 2008 July 29, 2009 February 1, 2010
Exercise price of options (in Rs.) 70.67 70.67 70.67 300.00 300.00
Total options vested 30,000 15,000 6,000 18,000 40,500
Options exercised 30,000 - 3,000 - 4,500
Total number of Equity Shares that would arise as a result of full exercise of options already granted 30,000 15,000 6,000 18,000 90,000
Options forfeited/ lapsed/ cancelled - - - - 36,000
Variation in terms of options - - - - -
Money realized by exercise of options (in Rs.) 21,20,100 - 2,12,010 - 13,50,000
Options outstanding (in force) - 15,000 3,000 18,000 49,500
Person-wise details of options granted to
i) Directors and key managerial employees 30,000 15,000 6,000 18,000 90,000
ii) Any other employ- ee who received a grant in any one year of options amount- ing to 5% or more of the options granted during the year - - - - -
iii) Identified employ- ees who are granted options during any one year equal to exceeding 1% of the issued capital (excluding outstand- ing warrants and conversions) of your Company at the time of grant - - - - -
Diluted EPS on issue of shares on exercise calculated as per AS 20 Rs. (30.55) as on March 31, 2013
Method of calcula- tion of employee compensation cost Fair Value Method
Weighted average exercise price of options Rs. 70.67 Rs. 70.67 Rs. 70.67 Rs. 300.00 Rs. 300.00
Weighted average fair value of options Rs. 15.28 Rs. 17.72 Rs. 52.14 Rs. 21.57 Rs. 72.53

The details of Tranche II have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 15,000 70.67 15,000 70.67
Granted during the year - - - -
Forfeited during the year - - - -
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 15,000 70.67 15,000 70.67
Exercisable at the end of the year 15,000 70.67 15,000 70.67
Weighted average remaining contractual life (years) * 2.8 - 0.8 -
Weighted average fair value of options granted - 17.72 - 17.72

* Exercise period ending on February 1, 2013 extended upto February 1, 2016.

The details of Tranche III have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 4,000 70.67 4,000 70.67
Granted during the year - - - -
Forfeited during the year - - - -
Exercised during the year 1,000 - - -
Expired during the year - - - -
Outstanding at the end of the year 3,000 70.67 4,000 70.67
Exercisable at the end of the year 3,000 70.67 4,000 70.67
Weighted average remaining contractual life (years) * 2.8 - 0.8 -
Weighted average fair value of options granted - 52.14 - 52.14

* Exercise period ending on February 1, 2013 extended upto February 1, 2016.

The weighted average share price on the date of exercise of 1,000 stock options was Rs.154.55.

The details of Tranche IV have been summarized below:

As at March 31, 2013

As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 18,000 300.00 18,000 300.00
Granted during the year - - - -
Forfeited during the year - - - -
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 18,000 300.00 18,000 300.00
Exercisable at the end of the year 18,000 300.00 18,000 300.00
Weighted average remaining contractual life (in years) * 1.3 - 0.3 -
Weighted average fair value of options granted - 21.57 - 21.57

* Original exercise period ending on July 29, 2012 extended upto July 29, 2014.

The details of Tranche V have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 49,500 300.00 85,500 300.00
Granted during the year - - - -
Forfeited during the year - - 36,000 300.00
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 49,500 300.00 49,500 300.00
Exercisable at the end of the year 36,000 300.00 22,500 300.00
Weighted average remaining contractual life (in years) 1.8 - 2.8 -
Weighted average fair value of options granted - 72.53 - 72.53

Details of options granted to Independent Directors are set forth below:

Name of Director Plan Total No. of options granted No. of options exercised Total No. of op- tions outstanding No. of Equity Shares held
Mr. Geoffrey Tanner Woolley Tranche IV 18,000 - 18,000
Tranche V 18,000 - 18,000
Mr. Gurcharan Das * Tranche I 15,000 15,000 - 5,500
Tranche I 15,000 15,000 -
Mr. P.H. Ravikumar Tranche III 3,000 3,000 - 15,400
Tranche V 18,000 4,500 13,500
Mr. Pramod Bhasin ** Tranche V 36,000 - - -
Tranche II 15,000 - 15,000
Dr. Tarun Khanna Tranche III 3,000 - 3,000 -
Tranche V 18,000 - 18,000

* Resigned with effect from January 5, 2010

** Resigned with effect from August 12, 2011 and options granted to him have lapsed

D. SKS Microfinance Employee Stock Option Plan 2008 (ESOP 2008)

Your Company instituted ESOP 2008 pursuant to a special resolution dated November 8,2008 passed at an EGM of your Company. The ESOP 2008 was amended pursuant to theresolutions passed through Postal Ballot on December 7, 2011.

The total number of shares (which mean Equity Shares of your Company and securitiesconvertible into Equity Shares) that may be issued under ESOP 2008 is 26,69,537 EquityShares. The ESOP 2008 came into effect on November 10, 2008 and is valid upto November 9,2014 or such other date as may be decided by the Board of Directors. The ESOP 2008 wasimplemented by the Board of Directors and the Compensation Committee. Unless otherwisespecified, the vested options were to be exercised prior to the expiry of 60 months fromthe date of vesting.

The following table sets forth the particulars of the options granted under ESOP 2008as on March 31, 2013:

Particulars Tranche I Tranche II Tranche III
Pricing formula Options granted 17,69,537 9,00,000 4,49,897
The Exercise Price for the Shares to be issued pursuant to the Exercise of an Option shall be such price as is determined by the Compensation Committee (and set forth in the SKS Microfinance Stock Option Agreement) based on the Fair Market Value per Share on the date of Grant of the Option but it shall not be lower than the face value of the Equity Shares to be issued.

 

Particulars Tranche I Tranche II Tranche III
Date of grant November 10, 2008 December 8, 2008 September 7, 2011
Exercise price of options (in Rs.) 300.00 300.00 229.40
Total options vested 17,69,537 2,25,000 1,28,642
Options exercised - 2,25,000 -
Total number of Equity Shares that would arise as a result of full exercise of options already granted 17,69,537 9,00,000 4,49,897
Options forfeited/ lapsed/ cancelled/ surrendered - 6,75,000 1,92,614
Variation in terms of options - - -
Money realized by exercise of options (in Rs.) - 6,75,00,000 -
Options outstanding (in force) 17,69,537 - 2,57,283
Person-wise details of options granted to
i) Directors and key managerial employees 17,69,537 9,00,000 -
ii) Any other employee who received a grant in any one year of options amounting to 5% or more of the options granted during the year - - -
iii) Identified employees who are granted options during any one year equal to exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of your Company at the time of grant - - -
Diluted EPS on issue of shares on exercise calcu- lated as per AS 20 Rs. (30.55) as on March 31, 2013
Method of calculation of employee compensation cost Fair Value Method
Weighted average exercise price of options 300.00 300.00 229.40
Weighted average fair value of options 2.92 1.81 146.37

The details of Tranche I have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 17,69,537 300.00 17,69,537 300.00
Granted during the year - - - -
Forfeited during the year - - - -
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 17,69,537 300.00 17,69,537 300.00
Exercisable at the end of the year 17,69,537 300.00 17,69,537 300.00
Weighted average remaining contractual life (in years) 0.6 - 1.6 -
Weighted average fair value of options granted - 2.92 - 2.92

The details of Tranche II have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 2,25,000 300.00 6,75,000 300.00
Granted during the year - - - -
Forfeited during the year 2,25,000 300.00 4,50,000 300.00
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year - - 2,25,000 300.00
Exercisable at the end of the year - - 2,25,000 300.00
Weighted average remaining contractual life (in years) - - 0.2 -
Weighted average fair value of options granted - - - 1.81

The details of Tranche III have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 3,78,669 229.40 - -
Granted during the year - - 4,49,897 229.40
Forfeited during the year 1,21,386 229.40 71,228 229.40
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 2,57,283 229.40 3,78,669 229.40
Exercisable at the end of the year - - - -
Weighted average remaining contractual life (in years) 3.4 - 4.4 -
Weighted average fair value of options granted - 146.37 - 146.37

Details of options granted to Directors and key managerial personnel are set forthbelow:

Tranche Name of Director / key managerial personnel Total No. of options granted No. of options exercised Total No. of options outstanding No. of Equity Shares held
I Dr. Vikram Akula 17,69,537 - 17,69,537 -
II Mr. Suresh Gurumani * 9,00,000 2,25,000 - -

* Mr. Suresh Gurumani resigned as Director with effect from May 27, 2011 consequent towhich 4,50,000 unvested options were forfeited during the financial year ended March 31,2012 and 2,25,000 vested options lapsed as on May 25, 2012.

E. SKS Microfinance Employee Stock Option Plan 2009 (ESOP 2009)

The Company instituted ESOP 2009 pursuant to a special resolution dated September 30,2009 and, as amended pursuant to a special resolution dated December 10, 2009 passed at anEGM of your Company. This was further amended pursuant to the resolutions passed throughPostal Ballot on December 7, 2011.

The total number of Equity Shares that may be issued under ESOP 2009 (as amended,pursuant to a resolution of shareholders dated December 10, 2009) is 24,99,490 EquityShares. The ESOP 2009 came into effect on September 30, 2009 and is valid upto November30, 2014 or such other date as may be decided by the Board of Directors. The ESOP 2009 wasimplemented by the Board of Directors and the Compensation Committee. The vested optionswere to be exercised prior to the expiry of six years from the date of grant of theoptions as may be determined by the Board/ Compensation Committee.

The following table sets forth the particulars of the options granted under ESOP 2009as on March 31, 2013:

Particulars Tranche I Tranche II Tranche III Tranche IV
Options granted 5,14,750 18,81,160 10,340 4,70,332
Pricing formula The Exercise Price for the Shares to be issued pursuant to the Exercise of an Option shall be such price as is determined by the Compensation Committee (and set forth in the SKS Microfinance Stock Option Agreement) based on the Fair Market Value per Share on the date of Grant of the Option.
Date of grant November 3, 2009 December 16, 2009 May 4, 2010 September 7, 2011
Exercise price of options Rs. 300.00 (a) 13,13,160 at Rs. 150.00 per option; and (a) 4,340 at Rs. 150 per option; and Rs. 229.40
(b) 5,68,000 at Rs. 300.00 per option (b) 6,000 at Rs. 300 per option
Total options vested 3,09,780 (a) 4,13,588 at Rs. 150.00 per option; and (a) 1,237 at Rs. 150 per option; and 1,19,937
(b) 1,73,940 at Rs. 300.00 per option (b) 1,200 at Rs. 300 per option
Options exercised 1,47,110 (a) 1,32,995 at Rs. 150.00 per option; (a) 388 at Rs. 150 per option; and Nil
(b) 67,360 at Rs. 300.00 per option (b) Nil at Rs. 300 per option
Total number of Equity Shares that would arise as a result of full exercise of options already granted 5,14,750 18,81,160 10,340 4,70,332
Options forfeited/ lapsed/ cancelled/ surrendered 1,75,450 (a) 6,23,846 at Rs. 150.00 per option; and (a) 1,248 at Rs. 150.00 per option 2,30,458
(b) 3,47,100 at Rs. 300.00 per option (b) 3,000 at Rs. 300.00 per option
Variation in terms of options Nil Nil Nil Nil
Money realised by exercise of options 4,41,33,000 4,01,57,250 58,200 Nil
Options outstanding (in force) 1,92,190 (a) 5,56,319 at Rs. 150.00 per option; and (a) 2,704 at Rs. 150.00 per option; and 2,39,874
(b) 1,53,540 at Rs. 300.00 per option (b) 3,000 at Rs. 300.00 per option
Person-wise details of options granted to
i) Directors and key managerial employees Nil Nil Nil Nil
ii) Any other employee who received a grant in any one year of options amounting to 5% or more of the options granted during the year Nil Nil Nil Nil
iii) Identified employees who are granted options during any one year equal to exceeding 1% of the issued capital (excluding outstanding warrants and conver- sions) of your Company at the time of grant Nil Nil Nil Nil
Diluted EPS on issue of shares on exercise calcu- lated as per AS 20 Rs. (30.55) as on March 31, 2013
Method of calculation of employee compensation cost Fair Value Method
Weighted average exer- cise price of options Rs. 300.00 a. Rs. 300.00 a. Rs. 300.00 Rs. 229.40
b. Rs. 150.00 b. Rs. 150.00
Weighted average fair value of options Rs. 41.18 a. Rs. 115.30 a. Rs. 233.75 Rs. 146.37
b. Rs. 69.29 b. Rs. 152.53

The details of Tranche I have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 2,60,640 300.00 3,19,840 300.00
Granted during the year - - - -
Forfeited/ surrendered during the year 68,450 300.00 57,000 300.00
Exercised during the year - - 2,200 300.00
Expired during the year - - - -
Outstanding at the end of the year 1,92,190 300.00 2,60,640 300.00
Exercisable at the end of the year 1,59,170 300.00 1,17,928 300.00
Weighted average remaining contractual life (in years) 1.6 - 2.6 -
Weighted average fair value of options granted - 41.18 - 41.18

The weighted average share price for the period during which stock options wereexercised on a regular basis in financial year 2011-12 was Rs. 394.87.

The details of Tranche II have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 7,88,363 150.00 9,75,792 150.00
Granted during the year - - - -
Forfeited during the year 2,32,044 150.00 1,67,892 150.00
Exercised during the year - - 19,537 150.00
Expired during the year - - - -
Outstanding at the end of the year 5,56,319 150.00 7,88,363 150.00
Exercisable at the end of the year 2,80,593 150.00 2,35,548 150.00
Weighted average remaining contractual life (in years) 2.6 - 3.6 -
Weighted average fair value of options granted - 115.30 - 115.30

The weighted average share price for the period during which stock options wereexercised on a regular basis in financial year 2011-12 was Rs. 325.79.

The details ofTranche II have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 2,84,540 300.00 4,01,000 300.00
Granted during the year - - - -
Forfeited/ surrendered during the year 1,31,000 300.00 1,16,100 300.00
Exercised during the year - - 360 300.00
Expired during the year - - - -
Outstanding at the end of the year 1,53,540 300.00 2,84,540 300.00
Exercisable at the end of the year 83,580 300.00 73,400 300.00
Weighted average remaining contractual life (in years) 2.6 - 3.6 -
Weighted average fair value of options granted - 69.29 - 69.29

The weighted average share price for the period during which stock options wereexercised on a regular basis in financial year 2011-12 was Rs. 374.27.

The details of Tranche III have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 2,704 150 3,990 150
Granted during the year - - - -
Forfeited during the year - - 898 150
Exercised during the year - - 388 150
Expired during the year - - - -
Outstanding at the end of the year 2,704 150 2,704 150
Exercisable at the end of the year 849 150 230 150
Weighted average remaining contractual life (in years) 3.1 - 4.1 -
Weighted average fair value of options granted - 233.75 - 233.75

The weighted average share price for the period during which stock options wereexercised on a regular basis in financial year 2011-12 was Rs. 399.32.

The details of Tranche III have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 3,000 300 3,000 300
Granted during the year - - - -
Forfeited during the year - - - -
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 3,000 300 3,000 300
Exercisable at the end of the year 1200 300 600 300
Weighted average remaining contractual life (in years) 3.1 - 4.1 -
Weighted average fair value of options granted - 152.53 - 152.53

The details of Tranche IV have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 3,74,522 229.40 4,70,332 229.40
Granted during the year - - 95,810 229.40
Forfeited during the year 1,34,648 229.40 - -
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 2,39,874 229.40 3,74,522 229.40
Exercisable at the end of the year 3.4 - 4.4 -
Weighted average remaining contractual life (in years) - 146.37 - 146.37
Weighted average fair value of options granted - - - -

F. SKS Microfinance Employee Stock Option Plan 2010 (ESOP 2010)

Your Company instituted ESOP 2010 pursuant to a special resolution dated July 16, 2010passed at an AGM of your Company. The ESOP 2010 was amended pursuant to the resolutionspassed through Postal Ballot on December 7, 2011.

The total number of shares (which mean Equity Shares of your Company and securitiesconvertible into Equity Shares) that may be issued under ESOP 2010 is 12,00,000 EquityShares. The ESOP 2010 came into effect on July 16, 2010 and is valid upto July 15, 2016 orsuch other date as may be decided by the Board of Directors. The ESOP 2010 was implementedby the Board of Directors and the Compensation Committee. Unless otherwise specified, allgrants made to any employee would vest not earlier than one year but not later than fiveyears from the date of grant of options.

Your Company has granted 8,66,100 options convertible into 8,66,100 Equity Shares offace value of Rs. 10 each on various dates as tabulated below and the following table setsforth the particulars of the options granted under ESOP 2010 as on March 31, 2013:

Particulars Tranche I Tranche II
Options granted 5,66,100 3,00,000
Pricing formula The Exercise Price for the Shares to be issued pursuant to the Exercise of an Option shall be such price as is determined by the Compensation Committee (and set forth in the SKS Microfinance Stock Option Agreement) based on the Fair Market Value per Share on the date of Grant of the Option but it shall not be lower than the face value of the Equity Shares to be issued.
Date of grant September 7, 2011 November 23, 2011
Exercise price of options (in Rs.) 229.40 109.95
Total options vested 1,54,471 1,98,000
Options exercised - -
Total number of Equity Shares that would arise as a result of full exercise of options already granted 5,66,100 3,00,000
Options forfeited/ lapsed/ cancelled/ surren- dered 2,57,158 -
Variation in terms of options Nil Nil
Money realized by exercise of options (in Rs.) - -
Options outstanding (in force) 3,08,942 3,00,000
Person-wise details of options granted to
i) Directors and key managerial employees Nil Nil
ii) Any other employee who received a grant in any one year of options amounting to 5% or more of the options granted during the year Nil Nil
iii) Identified employees who are granted op- tions during any one year equal to exceeding 1% of the issued capital (excluding outstand- ing warrants and conversions) of your Com- pany at the time of grant Nil Nil
Diluted EPS on issue of shares on exercise calculated as per AS 20 Rs. (30.55) as on March 31, 2013
Method of calculation of employee compen- sation cost Fair Value Method
Weighted average exercise price of options Rs. 229.40 Rs. 109.95
Weighted average fair value of options Rs. 146.37 Rs. 77.23

The details of Tranche I have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 4,62,944 229.40 - -
Granted during the year - - 5,66,100 229.40
Forfeited/ surrendered during the year 1,54,002 229.40 1,03,156 229.40
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 3,08,942 229.40 4,62,944 229.40
Exercisable at the end of the year - - - -
Weighted average remaining contractual life (in years) 3.4 - 4.4 -
Weighted average fair value of options granted - 146.37 - 146.37

The details of Tranche II have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year 3,00,000 109.95 - -
Granted during the year - - 3,00,000 109.95
Forfeited during the year - - - -
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 3,00,000 109.95 3,00,000 109.95
Exercisable at the end of the year 1,00,000 109.95 - -
Weighted average remaining contractual life (in years) 4.7 - 5.7 -
Weighted average fair value of options granted - 77.23 - 77.23

Details of options granted to Directors and key managerial personnel are set forthbelow:

Tranche Name of Director/ key managerial personnel Total No. of options granted No. of options exercised Total No. of options outstanding No. of Equity Shares held
II Mr. P.H. Ravikumar 1,00,000 - 1,00,000 -
II Dr. Tarun Khanna 1,00,000 - 1,00,000 -
II Mr. Geoffrey Tanner Woolley 1,00,000 - 1,00,000 -

G. SKS Microfinance Employee Stock Option Plan 2011 (ESOP 2011)

The Company instituted ESOP 2011 pursuant to a special resolution dated December 7,2011 passed through Postal Ballot as per Section 192A of The Companies Act, 1956.

The total number of shares (which mean Equity Shares of your Company and securitiesconvertible into Equity Shares) that may be issued under ESOP 2011 is 13,50,000 EquityShares. The ESOP 2011 came into effect on December 7, 2011 and shall remain in effectuntil all options granted under the ESOP 2011 have been exercised or have expired or suchother date as may be decided by the Board of Directors. No options have been granted underESOP 2011.

Your Company has granted 5,19,112 options convertible into 5,19,112 Equity Shares offace value of Rs. 10 each on various dates as tabulated below and the following table setsforth the particulars of the options granted under ESOP 2011 as on March 31, 2013:

Particulars Tranche I * Tranche II **
Options granted 4,00,000 1,19,112
Pricing formula The Exercise Price for the Shares to be issued pursuant to the Exercise of an Option shall be such price as is determined by the Compensation Committee (and set forth in the SKS Microfinance Stock Option Agreement) based on the Fair Market Value per Share on the date of Grant of the Option but it shall not be lower than the face value of the Equity Shares to be issued.
Date of grant March 12, 2013 March 22, 2013
Exercise price of options (in Rs.) 150.00 150.00
Total options vested - -
Options exercised - -
Total number of Equity Shares that would arise as a result of full exercise of options already granted 4,00,000 1,19,112
Total number of Equity Shares that would arise as a result of full exercise of options already granted 4,00,000 1,19,112
Options forfeited/ lapsed/ cancelled - -
Variation in terms of options Nil Nil
Money realized by exercise of options (in Rs.) - -
Options outstanding (in force) 4,00,000 1,19,112
Person-wise details of options granted to
i) Directors and key managerial employees Nil Nil
ii) Any other employee who received a grant in any one year of options amounting to 5% or more of the options granted during the year Nil Nil
iii) Identified employees who are granted op- tions during any one year equal to exceeding 1% of the issued capital (excluding outstand- ing warrants and conversions) of your Com- pany at the time of grant Nil Nil
Diluted EPS on issue of shares on exercise calculated as per AS 20 Rs. (30.55) as on March 31, 2013

 

Method of calculation of employee compensation cost Fair Value Method
Weighted average exercise price of options Rs. 150 Rs. 150
Weighted average fair value of options 71.81 57.43

* The weighted average fair value of stock options granted during the year was Rs.71.81. The Black-Scholes Model has been used for computing the weighted average fair valueconsidering the following:

Particulars Tranche vesting in FY14 Tranche vesting in FY15 Tranche vesting in FY16
Share price on the date of grant 142.75 142.75 142.75
(Rs.)
Exercise price (Rs.) 150.00 150.00 150.00
Expected volatility (%) 62.46 62.46 62.46
Life of the options granted (years) 5 5 5
Risk-free interest rate (%) 7.84% 7.85% 7.86%
Expected dividend rate (%) 0% 0% 0%
Fair value of the option 66.56 71.92 76.79

** The weighted average fair value of stock options granted during the year was Rs.57.43. The Black-Scholes Model has been used for computing the weighted average fair valueconsidering the following:

Particulars Tranche vesting in FY14 Tranche vesting in FY15 Tranche vesting in FY16
Share price on the date of grant (Rs.) 124.00 124.00 124.00
Exercise price (Rs.) 150.00 150.00 150.00
Expected volatility (%) 62.30 62.30 62.30
Life of the options granted (years) 5 5 5
Risk-free interest rate (%) 7.89% 7.88% 7.88%
Expected dividend rate (%) 0% 0% 0%
Fair value of the option 52.60 57.52 62.02

Volatility of the share price of the Company has been calculated as the standarddeviation of the closing prices for a period of one year ending on the date of grant.

The details of Tranche I have been summarized below:

Particulars As at March 31, 2013 As at March 31, 2012
Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year - - - -
Granted during the year 4,00,000 150.00 - -
Forfeited during the year - - - -
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 4,00,000 150.00 - -
Exercisable at the end of the year - - - -
Weighted average remaining contractual life (in years) 4.9 - - -
Weighted average fair value of options granted - 71.81 - -

The details of Tranche II have been summarized below:

As at March 31, 2013 As at March 31, 2012
Particulars Number of options Weighted average exercise price (Rs.) Number of options Weighted average exercise price (Rs.)
Outstanding at the beginning of the year - - - -
Granted during the year 1,19,112 150.00 - -
Forfeited during the year - - - -
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 1,19,112 150.00 - -
Exercisable at the end of the year - - - -
Weighted average remaining contractual life (in years) 5.0 - - -
Weighted average fair value of options granted - 57.43 - -

Details of options granted to Directors and key managerial personnel are set forthbelow:

Tranche Name of Director/ key managerial personnel Total No. of options granted No. of options exercised Total No. of options outstanding No. of Equity Shares held
II Mr. P.H. Ravikumar 1,00,000 - 1,00,000 -
II Dr. Tarun Khanna 1,00,000 - 1,00,000 -
II Mr. Geoffrey Tanner Woolley 1,00,000 - 1,00,000 -
II Mrs. Ranjana Kumar 1,00,000 - 1,00,000 -

Apart from the options granted under the ESOP 2008, ESOP 2008 (ID), ESOP 2009, ESOP2010 and ESOP 2011, there are no outstanding financial instruments or any other rightswhich would entitle the existing promoters or shareholders or any other person any optionto acquire your Company’s Equity Shares.

For and on behalf of the Board of Directors
Place: Hyderabad SD/- SD/-
Date: July 25, 2013 P.H. Ravikumar M.R. Rao
Non-Executive Chairman-Interim Managing Director and CEO

Annexure – 2 to the Directors’ Report

Information under Section 217(2A) of the Companies Act, 1956 read with the Companies(Particulars of Employees) Rules, 1975 and forming part of the Directors’ Report forthe Financial Year ended March 31, 2013.

A. Employed throughout the year and in receipt of remuneration of Rs. 60,00,000/- andabove:

Employee Name Designation Qualification Age Exp. (Years) Joining Date Gross Remunera- tion (Rs.) Designation & Previ- ous Employment
1 Mr. M.R. Rao Managing Director and CEO MMS 49 27 Oct. 24, ’06 * 1,62,26,936 Head, Alternate Chan- nels, ING Vysya Life
2 Mr. S. Dilli Raj CFO B.Com, MBA 45 23 Jan. 28, ’08 69,22,122 SVP - Treasury/ CFO, FLCI Ltd.
3 Mr. Srini- vasa Reddy Vudumula Sr. EVP Human Resources BE, PGD PM & IR (XLRI) 45 21 Jun. 7, ’10 67,03,636 Head, HR, Maytas Infra Ltd.
4 Mr. A.V. Sateesh Kumar EVP Member Services PGDM ( IIM) 47 22 Jul. 8, ’10 62,59,169 President (Life Insur- ance), IIFL

* Salary, incentives and perquisites for Mr. M.R. Rao for FY13 include an amount of Rs.73,84,276 representing arrears for FY12.

B. Employed partly during the year and in receipt of remuneration of Rs. 5,00,000/- permonth and above:

Employee Name Designation Qualification Age Exp. (Years) Joining Date Gross Remunera- tion (Rs.) Designation & Previ- ous Employment
None

Notes:

1. All appointments are contractual

2. No Director is related to any other Director or employee of your Company listedabove

3. Remuneration received/ receivable includes Gross Salary (Fixed), Employer’sContribution to PF, actual bonus and special incentive paid

4. None of the employees listed above, individually or along with his/ her spouse anddependent children, holds 2% or more of the Equity Shares of your Company

Annexure – 3 to the Directors’ Report

Particulars pursuant to Companies (Disclosure of Particulars in the Report of Board ofDirectors) Rules, 1988:

A. Conservation of energy:
(a) Energy conservation measures taken Your Company has been maintaining 50 roof-top solar photovol- taic panels as an alternate source of electricity for its branches at different locations across India
(b) Additional investments and proposals, if any, being implemented for reduction of consumption of energy Your Company plans to distribute 1306 solar lanterns during FY14 amongst sangam managers across the Regional Offices
(c) Impact of the measures at (a) and (b) above on reduction of energy consumption and consequent impact on the cost of pro- duction of goods Your Company may help in conserving 120.8 MW of energy per annum with the initiatives mentioned in (a) and (b)
(d) Total energy consumption and energy consumption per unit of production as per Form A of the Annexure in respect of industries specified in the Schedule thereto - Not applicable -
B. Technology absorption:
(e) Efforts made in technology absorption as per Form B of the Refer Form B
Annexure
C. Foreign exchange earnings and outgo:
(f) Activities relating to exports; initiatives taken to increase exports; development of new export markets for products and services; and export plans - Not applicable -

 

2012-13 2011-12
(g) Earning Rs. Nil Rs. Nil
(h) Outgo Rs. 2,70,87,814 Rs. 24,50,519

 

FORM B
1. Efforts, in brief, made towards technology absorption, adaptation and innovation Your Company has designed specific tools, rules and discipline for the organization, helping it in improving efficiency and productivity with low-cost solutions
Key areas of improvement are:
1) Developing an enterprise core application and business reporting and intelligence system for managing applications for different products
2) Developing an advanced data centre and business continuity solutions for the organization and designing hybrid connectivity, connecting SKS branches across India
2. Benefits derived as a result of the above efforts, e.g., product improvement, cost reduction, product development, import substitution, etc. Cost and time reduction in the operations of your Company.
3. In case of imported technology (imported during the last five years reckoned from the beginning of the financial year), following information may be furnished: - Not applicable -
a) Technology imported.
b) Year of import.
c) Has technology been fully absorbed?
d) If not fully absorbed, areas where this has not taken place, reasons thereof and future plans of action.
   

Peer Comparison

Company Market Cap
(Rs. in Cr.)
P/E (TTM)
(x)
P/BV (TTM)
(x)
EV/EBIDTA
(x)
ROE
(%)
ROCE
(%)
D/E
(x)
I D F C 23,101.47 14.13 1.57 10.01 12.1 10.6 3.88
Shriram Trans. 20,385.17 16.58 2.46 7.60 16.4 13.3 4.33
Bajaj Finserv 15,010.81 184.61 6.09 116.13 3.4 4.4 0.00
Reliance Capital 14,352.16 35.09 1.23 9.53 5.9 9.4 1.73
Indiabulls Hous. 13,721.90 8.60 2.51 7.41 29.0 13.4 6.30
M & M Financial 13,377.00 15.72 2.63 9.82 18.6 13.2 4.48
L&T Fin.Holdings 11,793.17 61.25 3.34 50.40 3.4 5.2 0.16
Shri.City Union. 11,125.75 20.93 3.02 7.26 20.2 13.8 4.81
Bajaj Fin. 11,058.38 14.65 2.77 10.25 19.6 13.3 4.48
Sundaram Finance 10,554.50 23.52 4.39 9.21 19.7 12.9 5.17
Vatsa Corpn 10,250.98 0.00 1.35 0.00 0.0 0.0 0.00
Muthoot Finance 6,879.13 8.82 1.47 6.74 30.2 17.0 6.52
Chola. Invest. 5,970.90 16.80 2.60 9.13 17.1 12.2 7.84
Religare Enterp. 5,795.72 0.00 1.97 0.00 0.0 0.0 0.24
Netwrk.18 Media 5,448.67 0.00 1.60 35.65 0.0 0.0 0.25

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Key Information

Key Executives:

P H Ravi Kumar , Chairman (Non-Executive)  

Tarun Khanna , Director  

Geoffrey Tanner Woolley , Director  

Sumir Chadha , Director  


Company Head Office / Quarters:
Unit No 410 Madhava,
Bandra-Kurla Complex,
Mumbai,
Maharashtra-400051
Phone : 91-040-44526000
Fax : 91-040-44526001
E-mail : investor.relations@sksindia.com
Web : http://www.sksindia.com
Registrars:
Karvy Computershare Pvt Ltd
Plot No 17-24
Vittal Rao Nagar
Madhapur
Hyderabad-500081

Fund Holding


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