Arman Financial Services Ltd

BSE: 531179 | NSE: NA | ISIN: INE109C01017 
Market Cap: [Rs.Cr.] 13 | Face Value: [Rs.] 10
Industry: Finance & Investments

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Management Discussions

Annexure to Directors Report

Annexure to Directors Report

The Directors of Arman Financial Services Ltd ("Arman", "Company")and its wholly-owned subsidiary, Namra Finance Limited ("Namra","Subsidiary") are pleased to present the Management Discussion & Analysis("MD&A") Report for the Year Ended 31st March, 2013. As far as growth andprofits, Arman had another record year in all aspects of financial performance likeProfit, Income, Assets Size, Disbursements, etc. We would also like to take theopportunity to introduce Namra Finance Limited, a wholly-owned subsidiary of Arman, whichwill exclusively conduct business in Microfinance. We take great pride to note that Namrawas the first Company in India to be granted the NBFC-MFI License, a testament to oursystems, processes, transparency, governance, management, and good standing with the RBI;qualities that we strive to maintain. Regulatory situation for NBFCs faced challengesagain this year, especially in the Microfinance segment, which has put pressure in our NetInterest Margin. We have continued to invest into our systems, network, and servicingcapabilities, which combined with our strong capital base, position us well for futuregrowth

It is prudent to draw attention to the reader that the MD&A may make references tobusiness projections or expectations. Any forward-looking statement made by the Company,are based on our current expectations and assumptions regarding our business, the economy,and other future conditions. Because forward-looking statement relate to the future, theyare subject to inherent uncertainties, risks, and changes in circumstances that aredifficult to predict. Out actual results may differ materially from those contemplated bythe forward-looking statements. We caution you, therefore, against relying on any of theseforward looking statements. They are neither statements of historical fact nor guaranteesor assurances of future performance. There are no limitations to the factors that couldcause the actual results to vary materially from those in any of the projections orforward-looking statements.

Business Environment

Economic Scenario & Outlook

Fiscal 2013 has been a challenging year for the Indian economy. Growth has slowed tolevels lower than what has been seen in a long time. The current account deficit hasincreased substantially, which along with other factors, has put pressure on the currency.Credit and deposit growth have moderated, and interest rates remain high, though lowerthan a year ago. While policy measures by the Government during the second half of theyear, most notably the reining in of the fiscal deficit, have begun to address theeconomic challenges, there continues to be widespread pessimism about India’s futureeconomic prospects and our ability to get back to 8% GDP growth.

Consumption demand and consumer-related sectors have also been impacted by inflationand high interest rates. The moderation in core inflation and the progress on fiscalconsolidation have given the monetary authorities the space to reduce interest rates, andthis process has commenced. Going forward, one would hope for a continued reduction ininterest rates to help create conditions for growth.

Moderation of growth over the past year is a pertinent concern on the weakening ofeconomic fundamentals for the country. Structural bottlenecks, slow policy movement,stubborn interest rates on account of high inflation, declining exports, low non-foodcredit growth, declining industrial growth and subdued demand for both consumption andinvestment has led to the systematic decline in the overall economic growth of the countryin FY13 which will be at the 5.0% level projected by the Central Statistical Organisation(CSO). Growth has hence been held up this year on both the supply and demand fronts whichhas impeded any pick-up in activity. A 7.5% GDP growth at the beginning of the year wasexpected and the path followed has been quite different from what was expected.

The CSO in its advance estimate indicates growth to settle at 5.0% in FY14; this wouldprimarily be driven by growth in services, given that agricultural activity has taken asetback, and industrial activity with limited capital investments has been subdued so far,growth expectations from these sectors are not high. Some industry experts expect growthto revive gradually going into the next fiscal; with an estimate for GDP growth of 6.0% inFY14, 1% higher than the CSO’s expectation. However, this expectation would ride onthe back of normal monsoons giving a good harvest, increase in investments in a favorableinterest rate regime and gradual recovery in industrial production. Above all it isassumed that the government will expedite projects that have been held up and also startspending on capital projects, which has up till now been held up on account of fiscalconstraints. Further it is assumed that the government will focus more on policies that donot require legislative approval in order to revive the growth process and that while onecan hope for important bills to be moved in the Parliament, the assumption here is thatthis may not happen and in terms of policy, the situation would largely be a status quo.

Inflation, measured by the Wholesale Price Index (WPI), remained above 7.0% betweenApril 2012 and January 2013, and subsequently eased to 6.0% in March 2013. The moderationin inflation was driven by the manufactured products segment where inflation increasedfrom 5.3% in April 2012 to 6.5% in September 2012 before easing to 4.1% in March 2013.Inflation in food articles remained high through the year with the average inflation at9.9% in fiscal 2013 compared to 7.3% in fiscal 2012. Fuel inflation which initially easedpicked up in the later part of the year due to hike in petrol prices and partialderegulation of diesel prices. Core inflation (defined as manufactured products excludingfood products) reduced from 5.0% in March 2012 to 3.4% in March 2013. Average inflationfor fiscal 2013 was 7.3% compared to 8.9% in fiscal 2012. Average annual inflation islikely to ease further in FY14 on account of decline in food inflation due to high baseeffect and assumption of normal monsoons that will ensure a normal harvest. The easing ofcore inflation due to lower/stable domestic and global demand conditions to put somedownward pressure. However, the tendency for MSPs to be increased every year, willcontinue to exercise pressure on food prices, and hence will come in the way of inflationmoderation. Also the stance on diesel and LPG subsidy will have a bearing on the movementin prices of fuel prices.

The Reserve Bank of India (RBI) undertook a calibrated easing of monetary policy duringthe year. During fiscal 2013, the repo rate was reduced by 100 basis points from 8.50% to7.50% with a 50 basis points cut in April 2012 followed by a 25 basis points reductioneach in January 2013 and March 2013. The cash reserve ratio (CRR) was reduced by 75 basispoints during the year from 4.75% to 4.00%, with a 25 basis point cut each effective inSeptember 2012, November 2012 and February 2013. Further, in August 2012, the statutoryliquidity ratio was reduced by 100 basis points from 24.0% to 23.0%.

After being subdued in FY12 and for most part of FY13, stock markets had begun with anupward move. Movement of stock markets in FY14 would be influenced by many domestic andglobal factors. On the domestic front, growth-inflation trends, movement of exchange rateand current account deficit, policy changes and political stability in the wake of the2014 General Elections would be major determinants. These factors would increasevolatility in the market. Global developments in the US and Euro-zone could be potentialstresses exogenously impacting Indian capital markets. Despite extraneous risks, Indianequity markets have in the last few years emerged as an attractive investment destination.Indeed, economic and financial problems in developed economies have caused money to flowinto countries such as India that have been registering comparatively better growth rates.Indian markets are widely regarded to be driven by FII inflows. There has been a longprevailing and strong correlation between FII inflows and stock market movements at 0.83.

Non-Banking Finance Company (NBFC) Outlook

For several years, NBFCs have rapidly emerged as an important segment of the IndianFinancial System. The sector is now being recognized as complementary to the bankingsector due to the implementation of innovative marketing strategies, introduction oftailor made products, customer-oriented services, attractive rates of return on depositsand simplified procedures. If fact, NBFCs have emerged as a powerful force for financialinclusion in India, serving the bottom of the pyramid rural clients.

NBFCs are characterized by their ability to provide niche financial services in theIndian economy. Because of their relative organizational flexibility leading to a betterresponse mechanism, they are often able to provide tailor-made services relatively fasterthan banks. This enables them to build up a clientele that ranges from small borrowers toestablished corporates. NBFCs have often been leaders in financial innovations, which arecapable of enhancing the functional efficiency of the financial system.

RBI’s report titled "Report on trends on progress of banking in India"observes:

"Non-Banking Financial Institutions (NBFIs) are playing pivotal role in broadeningaccess to financial services, enhancing competition and diversification of the financialsector. They are increasingly being recognised as complementary to the banking systemcapable of absorbing shocks and spreading risk mitigation at the times of financialdistress", further "NBFCs perform a diversified range of functions and offervarious financial services to individual, corporate and institutional clients. They havebeen helping to bridge the credit gaps in several sectors where the institutions likebanks are unable to venture. With the growing importance assigned to financial inclusion,NBFCs have come to be regarded as important financial intermediaries particularly for thesmall-scale and retail sectors."

NBFC’s are governed and are required to be registered with RBI, follow stringentprudential norms prescribed by RBI in the matters of capital adequacy, credit investmentnorms, asset-liability management, income recognition, accounting standards, assetclassification, provisioning for NPA and several disclosure requirements. Besides this,RBI also supervises the functioning of NBFCs by conducting annual on-site audits throughits officials. Such a rigorous regulatory framework ensures that NBFCs function properlyand follow all the guidelines of RBI. Thus in all respect the monitoring of NBFCs issimilar to banks.

India Ratings has maintained a stable outlook on the Indian non-bank finance companies(NBFC) sector for 2013-14. The sector faces the dual impact of rising credit costs andelevated funding costs in the year; however, tests on asset quality and funding costsshows that the robust pre-provision operating profit (PPOP) provides a strong bufferagainst expected credit quality pressures.

The expected uptick in economic growth will ease some cyclical pressures. Nevertheless,industrial production is unlikely to improve soon, and this, together with the uncertaintyaround infrastructure projects and rising diesel prices, will weigh on credit quality.Funding costs will also remain elevated – a result of the unfavorable regulatorychanges in last two years.

The operating environment for some of the key business lines of NBFCs remainschallenging in 2013. Although large NBFCs have attempted to diversify their business inrecent years, bulk of the NBFC business is still vehicle finance, and the diversificationhas been largely within different types of vehicles. Exposure to non-automobile businesslines - small business loans, property loans, gold loans, personal loans, remains small atmost NBFCs and is unlikely to change substantially in the near-to-medium term.

Banks and mutual funds remain the major creditors of NBFCs, despite unfavorableregulatory changes in the last two years - bank loans to NBFCs excluded frompriority-sector lending from 1 April 2011 (except to ‘eligible micro financeinstitutions’), restrictions placed on providing credit enhancement in bilateralassignment transactions under the revised securitization guidelines of August 2012 and thesectoral cap of 30% on mutual funds’ debt investments (by the Securities &Exchange Board of India in October 2012).

The Company believes that the draft guidelines proposed by the RBI in December 2012, ifimplemented, will be positive for the NBFC sector in the long-term even though some of theclauses can impact profitability in the early stages of implementation. However, theproposed increase in standard asset provision to 0.40% (from 0.25%) from Q1FY14 willmarginally impact NBFC’s profitability in 2014.

We expects these new proposals to have limited financial impact on most NBFCs. We donot expect any material impact from the requirements of higher Tier 1 ratio and liquidasset coverage as most NBFCs maintain high capital ratios and well-matched asset-liabilitytenors.

If the proposed requirement of registration of NBFCs at an asset size of Rs 25 Cr isimplemented, we expect small and mid-sized NBFCs to consolidate further. This is because ahuge majority of NBFCs are small. On the basis of the RBI data, as at 30 June 2012, therewere 12,385 registered NBFCs. At end-March 2012, there were 297 deposit-taking NBFCs and365 systematically important non-deposit-taking NBFCs, which would be largely unchanged atend-June 2013.

The RBI proposed new draft regulatory guidelines on NBFCs based on the recommendationsof the Usha Thorat Committee on 12 December 2012 are listed below:

1. The Tier 1 ratio of registered NBFCs should be increased to 10% (12% for captivefinance companies - financing 90% of parent’s products), and three years be given toachieve the required ratio (currently the minimum Tier 1 ratio for retail finance NBFCs is7.5%).

2. Asset classification and provisioning norms similar to those for banks are to beintroduced in a phased manner. This includes standard asset provision at 0.40% (current0.25%), the 90 days overdue norm for classifying NPLs from Q1FY16, to be transited througha 120- day NPL from Q1FY15, and a ‘one-time restructuring’ to be allowed forborrowers, which will not be treated as default.

3. Liquidity ratio requirement for all registered NBFCs, such that cash, bank balancesand government securities fully cover the gaps, if any, between cumulative outflows andcumulative inflows for the first 30 days (currently only deposit-taking NBFCs are requiredto hold 15% of their public deposits in the RBI-defined liquid assets).

4. Strict corporate governance standards to be followed by large NBFCs. RBI permissionnecessary for change in control, or sale of 25% stake, and appointment of CEOs for NBFCswith asset size of over Rs 1,000 Cr.

5. Higher disclosures have been suggested by the RBI. These cover provision coverageratios, liquidity ratios, asset liability profiles, the extent of financing of a parentcompany’s products and the movement of non-performing assets.

6. Capital market and real estate exposures. Risk weights will be increased to 125% forcapital market exposures and 150% for commercial real estate exposures (from the current100% for both these categories).

7. NBFCs with asset size below Rs 25 Cr will be exempted from registration with theRBI; existing non-deposit taking NBFCs with asset size below Rs 25 Cr with have to providea roadmap to the RBI, for increasing their asset size to this level or above within twoyears.

Management does not expect the above to have a material impact on the future financialstatements of the company.


Ever since microcredit first began to capture public attention 25 years ago, it hasbeen proclaimed a tool of extraordinary power to lift poor people, particularly women, outof poverty, by providing access to credit to better fund business endeavors. Along theway, microcredit expanded into microfinance, which consists of offering a variety offinancial products to poor customers, including savings products, pension products,insurance products, and credit for non- business expenditures.

The Micro-Finance sector has undergone tremendous changes in the past couple of yearsowing to the crisis that the sector has seen. The NBFC Microfinance Institutions (MFI) wasin crisis propagated by the Andhra Pradesh Micro Finance Institutions (Regulation of MoneyLending) Ordinance, 2010. However, there is agreement within the industry that recovery isunderway. Microfinance has now been established and acknowledged as a significantcomponent of the financial system in the country and its contribution to financialinclusion continues to rival, and likely exceeds by a vast margin, that of the ruralbanking system.

Still today, a large part of Indian households (slightly more than 50%) have no accessto formal financial services. Most of their access to financial services is throughinformal channels such as money lenders and chit funds which have existed since timesimmemorial. While they are easy to access for credit, they come to the customers at a veryhigh cost and susceptible to frauds, as we have seen with the Saradha scam. The need forsaving is met in only a limited way if any. Some of the other critical customer needs suchas remittances and insurance are not even met. The challenge is not only of the reach offormal channels but it is compounded by the fact that the formal channels often have needfor high amounts of documentation and long lead times which make them practically unusablefor the customers.

The Saradha Chit-Fund scam is now synonymous with all that is wrong with India’sfinancial system. Financial exclusion, excessive and over burdening of laws, plenty of redtape, gullible investors, political-connections, poor enforcement of existing laws and acomplete disillusionment with the financial world. The root cause of such scams is not thesmartness of the scammer, rather it is the fact that formal banking and finance has soexcluded the common man that less than half the eligible Indian population has a bankaccount. Any person who has moved into a new city would attest to the impossibility ofopening a new bank account.

NBFCs attract public attention only during times of crisis. Little attention has beenpaid to the silent but effective manner in which NBFCs have spread their operations acrossthe country. NBFCs have provided financial solutions to sections of society who hithertowere at the mercy of unorganized players for credit and savings products, which weredelivered on economically and socially usurious terms.

The book Portfolios of the Poor: How the World’s Poor Live on $2 a Day (Collins,Morduch, Rutherford, and Ruthven 2009) presents the results of year-long financial diariescollected about twice a month from hundreds of rural and urban households in India,Bangladesh, and South Africa. These diaries reveal that financial instruments are criticalsurvival tools for poor households—indeed, that these tools are even more importantfor the poor than for richer people.

The study finds that a great difficulty faced by the poor is not only the amount oftheir income, but also the irregularity of that income. To meet basic consumption needs,poor households must save and borrow constantly. Whether or not financial services liftpeople out of poverty, these services are vital tools in helping the poor to cope withtheir circumstance. The poor use credit and savings not only to smooth consumption, butalso to deal with emergencies like health problems and to accumulate the larger sums theyneed to seize business opportunities and pay for big-ticket expenses like education,weddings, or funerals.

Both the RBI and the Central Government continue to recognize the crucial role playedby microfinance, and recognizes that "the microfinance sector is engaged in providingcredit and other financial services to the poor households and their microenterprises asan extended arm of the banking system."

RBI has created a separate category of NBFC for Companies that are engaged inMicrofinance Activities, called NBFC-MFI (Non-Banking Finance Company - MicrofinanceInstitutions). Arman subsidiary, Namra Finance Ltd., was the first company in India toreceive the new license, details of which will be provided later in the report.

The gross loan portfolio of microfinance institutions have shown an upward movementwith 75% of MFIN (Microfinance Institutions Network) members reporting an increase in thegross loan portfolios. MFIN has 41 members that constitute about 85% of the Microfinanceactivity in India. Arman is also a member of MFIN. As of March 31, 2013, MFIN membersreported a total client base of 2.5 Crore, with a gross loan portfolio of Rs 21,300 Croresspread across 9,086 branches and serviced by 60,721 employees. This is a huge achievementfrom an industry that was almost non-existent a decade ago.

The Microfinance Bill 2012 was tabled in parliament was is expected to pass this comingfiscal year paving the way for a uniform and single regulatory regime. The companybelieves these measures and the MFI bill tabled in parliament are good for the industryand are combined with adequate safeguards to help stabilize the provisions of themicrofinance services in India.

Vehicle Finance

NBFCs, as an entity, play a very useful role in channelizing funds towards acquisitionof commercial vehicles and consequently, aid in the development of the road transportindustry. Needless to mention, the road transport sector accounts for nearly 70% of goodsmovement and 80% of passenger movement across the length and breadth of the country andthe role of NBFCs in the growth and development of this sector has been historicallyacknowledged by several committees set up by the Government and RBI, over the years.

Over the last few decades, roadways have dominantly improved their share due to greatercoverage, higher flexibility and lower risk of handling losses for commercialtransportation. Further, the government‘s investment in the development of nationalhighways over the last few years has led to higher demand for road transport. With furtherimprovement in road infrastructure and higher growth expected in road transport, and thegrowth of the Indian middle-class, demand for vehicles are expected to consistentlyincrease over the next decade.

Commercial vehicle and passenger vehicle volumes are likely to remain muted in 2013.While the expected decline in interest rates could gradually improve business and consumersentiments, the deregulation of diesel prices and planned monthly increases in dieselprices for the next 12-15 months (freight rates have not increased in tandem with dieselprice increases) and continued slowdown in infrastructure projects will weigh down newfinancing and existing loan books.

The Indian automobile industry grew by only 1.20 per cent in FY 2013. The industryproduced 1,685,355 vehicles in March 2013 as against 1,845,868 in March 2012, a decline of8.70 per cent. The overall growth in domestic sales in FY 2013 was 2.61 per cent.Passenger Vehicles (PV) segment grew at 2.15 per cent in FY 2013. The Passenger Carsegment declined by 6.69 per cent, while the Utility Vehicles segment grew by 52.20 percent and Vans grew only by 1.08 per cent during FY 2013, as compared to the same periodlast year. The overall Commercial Vehicles (CV) segment registered a decline of 2.02 percent in FY 2013, compared to the same period last year. While Medium and Heavy CommercialVehicles (MHCVs) segment growth declined by 23.18 per cent, Light Commercial Vehicles grewat 14.04 per cent. Three Wheelers sales posted a modest growth of 4.87 per cent inApril-March 2013. Passenger Carriers grew by 8.58 per cent during FY 2013 and GoodsCarriers registered de-growth at 9.20 per cent during this period.

Arman’s Business Operations

Arman is a category ‘A’ Non Banking Finance Company (NBFC) listed and tradedon the Bombay Stock Exchange (BSE). We operate mostly in unorganized and underservicedsegment of the economy and mostly serve niche markets. Long before ‘financialinclusion’ became a mainstream phrase, the vast majority of our customers have beenIndians on the bottom of the pyramid, understanding their aspirations and supporting themin their hour of need.

We do this by developing a business model characterized by very close customerinteraction and relationships and a deep understanding of customer needs. If we at Armanwere to pick one distinctive criterion that separates us from a Bank and other NBFCs, isthe last mile credit delivery system. We serve areas and clients where it is simply notpossible for banks to provide financial services under the current market scenario. We atArman have been able to bring in higher operating efficiencies within the system based onthe understanding and strength of our superior knowledge of local markets, and ourefficient, proactive, and conservative origination systems.

Arman operates in two major business segments 1. Two-wheeler and three-wheelerfinancing, and 2. JLG Microfinance (JLG Microfinance operations has demerged toArman’s wholly owned subsidiary, Namra Finance Limited). The portfolio between thetwo verticals is divided almost equally. This allows us to operate a well diversifiedcompany.

We currently operate out of 28 branches spread throughout Gujarat. With both of ourbusiness segments, Arman is strategically placed to cater to rising rural demand. RuralIndia’s share in overall GDP is around 50%. Within this, nearly 40% of rural incomearises from agriculture. As a result, high food prices imply a considerable rise in ruralincome. The immediate result of rising food prices is the transfer of wealth from urban torural India. In addition, the greater thrust of the government towards rural India hasbeen a boon to the rural economy and resulted in significant higher disposable incomes forthe rural population, and many are now in a position to pursue entrepreneurial endeavors,boost their income generating activities, or to purchase a two-wheeler vehicles.

Due to our extensive distribution networks in semi-urban and rural areas, we expectNBFCs such as ours to be the key beneficiary of the rise in rural incomes, as a result ofhigher food prices and efforts to improve agricultural productivity. We are strategicallypoised, with over 2 decades of experience in the rural financing market, and havedeveloped a sound business model for this niche. This model is difficult for otherfinanciers (banks in particular) to replicate. We have also built up robust branchnetworks over the years and are especially strong in under-banked credit-starvedrural/semi-urban areas.

We have a strong bargaining power and brand name in niche rural markets. We mainlycompete with Banks, NBFCs, and money lenders. We have an advantage over such players owingto our diversified operations across Gujarat, strong parentage and brand (hence, a trustedname among borrowers), expertise gained over the years, and lower cost of funds due tolong relations with banks. We also suit rural customers, as alternative sources of fundsare unattractive (exorbitant interest charged by money-lenders, and lack of trust fornewer small NBFCs due to their poor track record and lack of vintage). In addition, wehave an edge over banks due to less stringent lending norms and less paper work; a lot ofour customers are not -comfortable by banks and their procedures. We have designed hasslefree underwriting procedures aimed at serving rural, often illiterate clientele. Our staffis heavily trained to make the process quick, simple, and hassle free.

After the demerger of Arman’s Microfinance operations into Namra (discussedbelow), Arman will be the holding company of Namra and also remain committed to itstwo-wheeler and three-wheeler segment. Arman has been operating in this segment for thepast decade, and have developed a niche in this market. During the current fiscal year,Arman has expanded its operations in Palanpur & Surat, Gujarat. Other branches includeAhmedabad, Mehsana, and Baroda. Ahmedabad still remains our strongest branch, but thegrowth in Baroda and Mehsana is excellent as we move into Semi-Urban and Rural areas. Asfar as Ahmedabad market share is concerned, the Company continues to rank in the top-fivein the hypothecation of two-wheeler and three-wheeler vehicles.

Arman operates in almost all major dealers in Gujarat, and the financing the schemesoffered by the company remain very attractive and popular by our customers. This isevident by the sheer volume of cases the company receives versus the competitor, thefeedback we receive from the customers, and the amount if repeat customers we get on ayearly basis. What sets us apart from the competition is that we offer very flexibleproducts where all the loan variables including tenure, down-payment, fees, installmentamount etc. can be determined based on the customer’s needs. Additionally, our quickunderwriting time is a huge advantage for us. A customer can literally walk into a dealerearly afternoon and walk out with a new motorcycle in the evening. During that very shortperiod, we conduct background checks, telephonic verification, CIBIL credit check, Homeand Business/work Field Investigation check, fill all the necessary paper work, collectall relevant documentation from the customer, including KYC documents, and perform allother underwriting tasks. This is no ordinary feat, and our operations have work in syncand like clockwork.

Namra Finance Limited

On February 14, 2013, Namra Finance Ltd. became the first company in India to receivethe long awaited "NBFC-MFI" (Non-Banking Finance Company - MicrofinanceInstitution) License. This special category of NBFC was created by the RBI based on theMalegam Committee recommendations to serve the underserviced and the poor segment of Indiaby providing Microfinance, or small income-generating loans at reasonable interest rate,collateral-free.

Arman began its JLG Microfinance operations in early 2009, and by mid-2010, became oneof the largest regional players in Gujarat in the microfinance space. The Reserve Bank ofIndia ("RBI"), through its circular RBI/2011-12/290 dated December 2, 2011 hasintroduced a new set of guidelines to govern the Microfinance industry. The most notableand applicable two clauses of the circular indicates that an NBFC-MFI needs 85% of itsAssets in the nature of "Qualifying Assets" (see circular for definition ofQualifying Assets) & A NBFC which does not qualify as an NBFC-MFI shallnot extend loans to micro finance sector, which in aggregate exceed 10% of its totalassets. Since Arman has two healthy and profitable verticals, viz. Asset BackedFinance & Microfinance, the regulatory guidance in the aforementioned circularcompelled the Company to create a wholly owned subsidiary of Arman Financial ServicesLtd.; Namra Finance Limited. The Company invested Rs 5 Crore in October 2012 from itsReserves & Surplus to create the subsidiary Namra Finance Limited, and became thefirst company in the country to receive NBFC-MFI license. Namra Financial will be involvedonly in JLG Microfinance in the foreseeable future, and all assets created by Namra bybank financing will be qualified as Priority Sector Lending by the Bank.

Namra Finance was formed for the sole purpose of demerging Arman’s Microfinanceoperations into a separate entity to meet with regulatory and administrative requirements.The demerger will be completed in fiscal 2013-14, with Arman’s Microfinance portfoliobeing fully transferred to Namra. As of the End of June 30, 2013, the group entity’sMicrofinance operations consists of 24 active branches operating throughout Gujarat, withAssets Under Management of over Rs 37 Crores, and an Active Client base of 50,000. Overthe past fiscal year, disbursements equaled approximately Rs 60 Crores.

The combined entity under Arman has a long standing positive track record and is asolid company with an attractive business mix of secured and unsecured lending products.On one hand it offers a very high rural and social support and on the other hand itdelivers high commercial returns. Unlike many other MFIs and NBFC, we focus on controlledgrowth rather than irrational exponential growth. We are extremely conservative with ourlending and follow very strict underwriting guidelines. We are a member of HighMark Creditverification Agency for our Microfinance Operations and the group is also a member of SROMicrofinance Institutions Network (MFIN).

Our Microfinance operations under Arman (demerged into Namra) has been rated four timesby a very reputed Microfinance rating agency of India by the name of M-Cril from Gurgaonwhich specializes in rating Microfinance Institutions. Arman has received excellent ratingof - (Alpha Minus) all the four times. Recently, it has also been rated by CARE with alofty MFI-2 rating.

We at Namra believe that Inclusive growth has to encompass all segments of thepopulation not only by income but by where they live – be it urban India or ruralIndia .The penetration of financial services is low in rural India, and enhancing accessto financial services is an important pillar of inclusive growth. Today, rural India isevolving rapidly and is changing in character. It has diversified from just agriculture tomanufacturing and services sectors. Rural India has demonstrated the potential to be asustainable growth engine for the economy.


It is again a privilege to inform you that in tradition with the past 5 year, thecompany has broken all records from the previous years where profitability is concerned.This is despite a very negative market and regulatory environment. As reflected in theprofit chart below, profit before taxes equaled Rs 4.75 Crores versus Rs 4.55 Crores theprevious year and Rs 2.67 Crores the year before. Income from operations stood at Rs 17.0Crores versus Rs 15.5 Crores in the previous year, a 10% growth. The stunted growth inincome from operations and profit is due to the RBI margin and interest cap stipulated intheir circular RBI/ 2011-12/290 dated December 2, 2011, which put a upper ceiling on theinterest rate that can be charged to the Microfinance clients. This regulatory guidelineput pressure on our Income and our bottom-line.

The table below lists key performance figures for the years ended March 31, 2012 and2013.

Key Financials March 31, 2012 March 31, 2013
Equity capital Rs In Lacs 407.66 564.89
Net worth Rs In Lacs 1,968.23 2,259.52
Borrowings Rs In Lacs 3,614.85 5,037.83
Total Asset Rs In Lacs 6,518.10 8,242.99
Total Loans & Advances Rs In Lacs 5,203.97 7,227.77
Total Income Rs In Lacs 1,550.29 1,698.50
Interest Expenses Rs In Lacs 561.94 572.52
Operating Expenses Rs In Lacs 533.61 604.22
Provision & Write offs Rs In Lacs 57.52 46.44
Profit Before Tax Rs In Lacs 454.74 475.33
Profit After Tax Rs In Lacs 306.10 334.36
Total Income / Average Total Asset % 20.89 16.68
Interest Expense / Average Borrowing % 15.10 14.31
PAT / Average total Assets % 5.31 4.67
PAT / Average Net Worth % 28.86 21.04
Debt Equity Ratio Multiple 1.84 2.21
Non Performing Assets / Loans & Advances % 0.53 0.54
Write-Offs & Provisions / Loans & Advances % 1.11 0.57
Capital Adequacy Ratio (Holding Company) % 37.80 40.84

Based on the results, the Board of Directors recommends an 8% dividend.

Loan principle outstanding, i.e. Assets Under Management for loan advances tocustomers, stood at Rs 70.6 Crores at March 31, 2013 versus Rs 51.7 Crores, a 37% growth.See chart below for a graphical representation of increase in Assets Under Management forthe two business segments.

Arman has continued its commitment in the JLG Microfinance space. Disbursement forMicrofinance for the FY’ 13 Rs 60 Crores versus Rs 43 Crores in FY’ 12, a 40 %growth for the division. Assets under management Rs 32 Crores was in Microfinance divisionthis year versus Rs 21 Crores the previous year.

In the 2-3 wheeler segment, disbursements grew from Rs 33 Crores in FY’ 12 to Rs45 Crores in FY’ 13, a 36% increase; a considerable growth in a mature industry.Assets-under-management for 2-3 wheeler segment stood at Rs 39 Crores at the end ofFY’ 13 versus Rs 30 Crores the previous year.



The Members of


We have examined the registers, records, books and papers of M/S ARMAN FINANCIALSERVICES LIMITED (the Company), having the Registration No. 04-18623, as required tobe maintained under the Companies, Act, 1956 (the Act) and the rules made thereunder andalso the provisions contained in the Memorandum and Articles of Association of the Companyfor the financial year ended on 31st March 2013. In our opinion and to the bestof our information and according to the examinations carried out by us and explanationsfurnished to us by the Company, its officers and agents, we certify that in respect of theaforesaid financial year:

1. The Company has kept and maintained all registers as stated in Annexure‘A’ to this certificate, as per the provisions and the rules made thereunder andall entries therein have been duly recorded :

2. The Company has duly filed the forms and returns as stated in Annexure ‘B’to this certificate, with the Registrar of Companies under the Act and the rules madethereunder. No other forms / documents are required to be filed with Regional Director,Central Government, Company Law Board or other authorities.

3. The Company, being a public limited Company, has the minimum prescribed paid-upcapital.

4. The Board of Directors duly met (seven) times on 16/04/2012, 14/05/2012, 30/06/2012,07/08/2012, 22/10/2012, 25/01/2013, and 13/02/2013, in respect of which meetings’proceedings were properly recorded and signed including the circular resolutions passed inthe Minutes book maintained for the purpose.

5. The Company has closed its Register of Members from 22/09/2012 to 29/09/2012 duringthe year under scrutiny and necessary compliance under Section 154 of the Act has beenmade.

6. Annual general meeting for the financial year ended on 31/03/2012 was held on29/09/2012 after giving due notice to the members of the Company and the resolutionspassed thereat were duly recorded in Minutes Book maintained for the purpose;

7. No Extra ordinary general meeting was held during the financial year.

8. The Company has not advanced any loan to its directors and/or persons of firms orCompanies referred in Section 295 of the Act.

9. The Company has not entered into any contracts falling within the provisions ofSection 297 of the Act.

10. The Company has made necessary entries in the Register maintained under Section 301of the Act;

11. No person is holding place of profit in the Company as employee pursuant to theprovisions of Section 314 of the Act;

12. The Company has not issued any duplicate share certificate during the financialyear under review.

13. The Company has;

(i) made allotment of 15,72,293 Equity shares and also transferred 12,400 Equity sharesbut not transmitted any securities during the financial year and delivered all theCertificates on allotment in accordance with the provisions of the Act;

(ii) deposited the amount of dividend declared in a separate bank account on 4.10.2012which is within five days from the date of declaration of such dividend during the yearunder review.

(iii) paid / posted warrants for the dividend to all the members within a period of 07(seven) days from the date of declaration.

(iv) transferred amount in unpaid dividend Accounts for period of 7 years to InvestorEducation and Protection Fund.

(v) duly Complied with the requirements of Section 217 of the Act;

14. The Board of Directors of the Company is duly constituted and there was appointmentof additional Director to fill casual vacancy during the financial year.

15. The Appointment of Managing Director, Whole Time Director, Manager has been madeincompliance with the provision of Sec 269 read with schedule XIII to the Act.

16. There is no appointment of sole selling agents in the Company and therefore notapplicable.

17. The Company was not required to obtain any approval of the Central Government,Company Law Board, Regional Director, Registrar or such other authorities as may beprescribed under the various provisions of the Act during the financial year under review.

18. The directors have disclosed their interest in other firms/companies to the Boardof Directors pursuant to the provisions of the Act and the rules made thereunder;

19. The Company has issued 15,72,293 Equity shares 2,14,165 warrant and 12,75,760Compulsorily Convertible debenture during the financial year.

20. The Company has not bought back any shares during the financial year ending31.03.2013

21. There was no redemption of Preference Shares or Debenture during the FinancialYear.

22. There were no transaction necessitating the Company to in abeyance the rights todividend, rights shares and bonus shares pending registration of transfer of shares.

23. The Company has not accepted any pubic deposits from shareholders falling withinthe purview of Section 58A/58AA during the financial year and there are no public depositsoutstanding as on 31.03.2013.

24. The amount borrowed by the Company from Directors, banks, financial institutionsduring the financial year ended 31.03.2013 are within the borrowing limits of the Companyand that the necessary resolutions as per Section 293(1) (d) of the Act, have been passedin the duly convened general meeting of the Company.

25. The Company has not made any loans or given guarantees or provided securities toother bodies corporate and consequently no entries have been made in the register kept forthe purpose.

26. The Company has not altered the provisions of the Memorandum with respect tosituation of the Company’s registered office from one state to another during theyear under scrutiny.

27. The Company has not altered the provisions of the Memorandum with respect to theobject of the Company during the year under scrutiny.

28. The Company has not altered the provisions of the Memorandum with respect to thename of the Company during the year under scrutiny.

29. The Company has not altered the provisions of the Memorandum with respect to theshare capital of the Company during the year under scrutiny.

30. The Company has not altered the provisions of the Articles of Association of theCompany during the year under scrutiny.

31. No prosecution initiated against or show cause notices received by the Company foralleged offences under the Act and also the fines and penalties or any other punishmentimposed on the Company in any of the cases.

32. The Company has not received any money as security from its employees during theyear under certification.

33. The Company has deposited both employees’ and employer’s contribution toProvident Fund with the prescribed authorities pursuant to the provisions of Section 418of the Act.

DATE : 25/07/2013 PINAKIN SHAH
C.P.NO.: 2932, FCS NO.: 2562


Registers as maintained by the company
1. Register of Investment u/s 49
2. Register of Charges u/s 143
3. Register of Members u/s 150
4. Minute Book Containing Minutes of u/s 193
- Board Meeting
- General Meeting
- Committee Meetings
5. Register of Particular of Contracts u/s 301
6. Register of Directors u/s 303
7. Register of Directors’ shareholding u/s 307
8. Register of Share Application/ Allotment u/s 69-75
9. Register of Transfer

10. Register of Directors' attendance for Board Meeting

11. Register of Directors' attendance for Committee Meetings

12. Register of Directors' interest


Forms and Returns as filed by the Company with Registrar of Companies, Regionaldirector, Central Government or other authorities during the financial year ending on 31stMarch 2013.

Sr No Particulars of Form Form No Under Section Date of Filing Receipt/ Challan No
1 Return of Allotment 2 75(1) 20/04/2012 S08409294
2 Appointment of Amit Manakiwala as a Director Consultant 23 192 30/08/2012 B56509359
3 Return of Appointment of Managing Director or whole time Director 25C 269(2) 03/09/2012 B56663032
4 Appointment of Shri Shashikant
N. Thakar as Company Secretary 32 303(2) 11/09/2012 B57317174
5 Satisfaction of Charge of MAS Financial Services Ltd For Rs 500.00 lacs 17 138 28/09/2012 B58414327
6 Intimation of Auditors Appointment for FY 2011-2012 23B 224(1) 09/10/2012 S14520290
7 Modification of Hypo charge in favour of IDBI Bank Ltd For Rs 310.00 lacs 8 125 11/10/2012 B59426791
8 Annual Report Balance Sheet FY 2011-12 23AC 220 12/10/2012 P90033846
9 Annual Report Profit & Loss Account FY 2011-12 23ACA 220 12/10/2012 P90033846
10 Creation of Hypo charge in favour of MAS Financial Services Ltd For Rs 800.00 lacs 8 125 13/10/2012 B59552927
11 Appointment of Shri Lokesh Singh as Director 32 303(2) 23/10/2012 B60299641
12 Satisfaction of Charge of IDBI Bank Ltd For Rs 400.00 lacs 17 138 02/11/2012 B60917085
13 Annual Return as at 29.09.2012 20B 159 09/11/2012 P95042826
14 Satisfaction of Charge of Ananya Finance for Inclusive Growth Pvt Ltd For Rs 200.00 lacs 17 138 17/12/2012 B63858518
15 Satisfaction of Charge of Ananya Finance for Inclusive Growth Pvt Ltd For Rs 100.00 lacs 17 138 17/12/2012 B63855464
16 Satisfaction of Charge of Ananya Finance for Inclusive Growth Pvt Ltd For Rs 200.00 lacs 17 138 17/12/2012 B63857007
17 Creation of Hypo charge in favour of Reliance Capital Ltd For Rs 300.00 lacs 8 125 17/01/2013 B66046897
18 Creation of Hypo charge in favour of Reliance Capital Ltd For Rs 250.00 lacs 8 125 17/01/2013 B66046640
19 Creation of Hypo charge in favour of Reliance Capital Ltd For Rs 200.00 lacs 8 125 17/01/2013 B66046194
20 Return of Allotment 2 75(1) 18/02/2013 S20289542
21 Satisfaction of Charge of Ananya Finance for Inclusive Growth Pvt Ltd For Rs 100.00 lacs 17 138 12/03/2013 B69988954


DATE : 25/07/2013 PINAKIN SHAH
C. P. NO.: 2932, FCS NO.: 2562

Peer Comparison

Company Market Cap
(Rs. in Cr.)
I D F C 22,616.08 13.83 1.54 10.01 12.1 10.6 3.88
Shriram Trans. 20,114.05 16.36 2.43 7.60 16.4 13.3 4.33
Bajaj Finserv 15,028.31 184.82 6.10 116.13 3.4 4.4 0.00
Reliance Capital 14,194.96 34.71 1.22 9.53 5.9 9.4 1.73
M & M Financial 13,738.16 16.15 2.70 9.82 18.6 13.2 4.48
Indiabulls Hous. 13,442.51 8.43 2.46 7.41 29.0 13.4 6.30
L&T Fin.Holdings 11,664.24 60.58 3.31 50.40 3.4 5.2 0.16
Shri.City Union. 11,201.19 21.08 3.04 7.26 20.2 13.8 4.81
Bajaj Fin. 10,999.96 14.58 2.76 10.25 19.6 13.3 4.48
Sundaram Finance 10,632.27 23.69 4.42 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 6,908.91 8.85 1.48 6.74 30.2 17.0 6.52
Chola. Invest. 5,848.27 15.98 2.55 9.13 17.1 12.2 7.84
Religare Enterp. 5,666.43 0.00 1.93 0.00 0.0 0.0 0.24
KSK Electricity 5,418.99 0.00 9.36 0.00 0.3 0.4 0.00

Futures & Options Quote

Expiry Date
Instrument: NA
Expiry Date: NA
Strike Price: NA
Open Price: NA
Average Price: NA
No. of Contracts Traded: NA
Open Interest: NA
Underlying: NA
Option Type: NA
Market Lot: NA
Previous Close: NA
Day’s High | Low: NA | NA
Turnover (Cr.): NA
Open Int. Change: NA | NA
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Key Information

Key Executives:

Chinubhai R Shah , Chairman  

Jayendra B Patel , Vice Chairman & M.D.  

Kaushikbhai D Shah , Director  

Ritaben J Patel , Director  

Company Head Office / Quarters:
502-503 Sakar III,
Off Ashram Road Opp Old High S,
Phone : 91-079-7541989 / 3666 /3899
Fax : 91-079-7541738
E-mail :
Web :
Sharepro Services India Pvt Lt
Devnandan Mega Mall
Office No 416-420
4th Floor Ashram Rd

Fund Holding

Scheme Name No. of Shares
No data found


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