MANAGEMENT DISCUSSION AND ANALYSIS
Your Directors are pleased to present the Management Discussion and Analysis Report forthe year ended on 31st March, 2010.
The management feels that it will be prudent to draw the attention of the reader thatany business projections or forward-looking statements are based on our currentexpectations and assumptions regarding our business, the economy, and other futureconditions. Because forward-looking statements relate to the future, they are subject toinherent uncertainties, risks, and changes in circumstances that are difficult to predict.Our actual results may differ materially from those contemplated by the forward-lookingstatements. We caution you, therefore, against relying on any of these forward-lookingstatements. They are neither statements of historical fact nor guarantees or assurances offuture performance. While there is no assurance that any list of risks and uncertaintiesor risk factors is complete, there are no limitations to the factors that could causeactual results to differ materially from those in any of the projections orforward-looking statements.
By the end of Fiscal 2009, the Indian economy was reeling under pressures emanated fromthe global economic crisis and the prospects for economic growth in FY10 were expected toremain muted. The world economy has been through a severe recession, the worst in the last70 years, marked by financial turmoil, large-scale destruction of wealth, and declines inglobal output and trade. The global crisis, which began in the financial sector in thedeveloped countries exposed a number of unresolved fragilities within the increasinglyintegrated world financial system and affected the real economy. With our worst fears ofthe prolonged global recession behind us, management's confidence for future growth hasnever been stronger. Management is confident about the prospects of business growth in thenext 12 months for the country's economy.
Following the global financial and economic turmoil in 2008 and parts of 2009, 2010 wasa year of stability and significant restoration of confidence in global market. Thestability in the global economy has been challenged to some extent by several newdevelopments in Europe, for example, Greece and Spain.
Although China's overall economic growth continues to outpace India's, India enjoysrelatively stronger domestic demand that bolsters a robust economic outlook. The PrimeMinister's office estimates India's economy to grow by 8.5% in 2010-11, up from 7.2% in2009-10 and 6.7% in 2008-09. Economic growth prospects are expected to improvesignificantly in fiscal 2011 as the private sector demand - both consumption as well asinvestment - begins to pick up. However, the government consumption demand is expected tobe moderate on account of fiscal consolidation plan and expected gradual withdrawal ofstimulus packages announced earlier by the Indian government. Nonetheless, the focus ofgovernment spending on infrastructure sector would continue to support growth.
India's unexpectedly acceleration in inflation is causing despair in several segmentsin the economy. It touched double-digit levels in May 2010, and is expected to remain ahigh level until the first quarter of fiscal 2011. Interest rates are also expected torise from the current levels primarily due to monetary tightening by the RBI in an attemptto rein in inflationary pressures. Prices are rising in tandem with strengthening consumerdemand, evidenced by the 17.6% surge in industrial output in April 2010. The Reserve Bankof India says it will tighten the monetary policy at a moderate pace given therisks to economic expansion from Europe's sovereign-debt crisis.
Exports growth also turned positive from October 2009 after declining for 12consecutive months. Net FII inflows into India revived to US$ 23.6 billion duringApril-December 2009 compared to net outflows of US$ 11.3 billion during the correspondingperiod in the previous year.
During fiscal 2010, equity markets recovered significantly, with the BSE Sensexincreasing by 80.5% from 9,709 at March 31, 2009 to 17,528 at March 31, 2010. The rupeeappreciated from Rs. 51 per US dollar at year-end fiscal 2009 to Rs. 45 per US dollar atyear-end fiscal 2010.
FUTURE OUT LOOK
The Indian economy is likely to continue to outperform its global counterparts in theyear ahead. As mentioned above, the GDP is expected to grow by around 8% against anaverage world growth of 3.9%. Investment and capacity expansion will be a crucial link indriving the recovery forward, while an optimistic domestic demand should help it absorbany issues caused due to rising interest rates and inflation. With private capital andinfrastructure spending likely to gather ground, the ongoing recovery will be sustainableonto the next financial year and will also translate into greater advance in credit growthand stronger growth prospects for the financial sector in general. Focus on investment inthe next fiscal year is likely to render India as an attractive market that is wellpositioned to take advantage of both structural and cyclical gains while its strongdomestic base is likely to limit the impact of external stress on growth dynamics andreturns.
RBI policies are geared to support the growth momentum by maintaining macro economicand financial stability and ensuring that there is smooth flow of credit to the productivesectors of the economy. Given the strong fundamentals of the Indian economy and thesuccessful policies of RBI, there does not appear to be any major concern for thefinancial stability for financial services sectors.
ARMAN'S BUSINESS OPERATIONS
Arman is a category 'A' Non Banking Finance Company (NBFC). A majority of NBFC'soperate mostly in unorganized and underserviced segment of the economy and mostly serveniche market for themselves. This is in contrast to the Banks, wherein NBFC's businessmodel is characterized by very close customer interaction and relationship and a deepunderstanding of customer needs. If we at Arman were to pick one distinctive criterionthat separates us from a Bank, is the last mile credit delivery. NBFC's have contributedsignificantly towards the steady increase in the credit penetration levels. There iscertainly a long-term role for NBFCs whose contribution to the economy can in fact go-up,if they get greater parity in regulatory treatments. We at Arman have been able to bringin higher operating efficiencies within the system based on the understanding and strengthof our superior knowledge of local markets, and our efficient, proactive, and conservativeorigination systems.
Arman operates in two major business segments, which will be discussed in detail below.
1. JLG Microfinance
2. Asset-backed Microfinance (Two-wheeler/three-wheeler financing)
REAL ESSENCE OF GROUP BASED (JLG) MICRO FINANCE
Overall, credit penetration levels in India still remains low as compared to thedeveloped countries despite the rapid credit growth in recent past. Thus financialintermediaries like NBFC's are presented with big opportunities to not only meet therapidly growing credit needs of mainstream borrowers but also to address the huge untappeddemand of borrowers dependent largely on informal channels. This is where our efforts inMicrofinance activities play a meaningful long-term role.
Microfinance is the supply of small loans and other financial services to people with alow income that would otherwise have no access to credit from traditional banks andfinancial institutions. Microfinance is seen by many as a viable solution to reducepoverty and people reshaping their lives.
In a period of financial meltdown, where in the anatomy of the global financial marketswas completely rewritten, one category of financial institutions remained not onlyunaffected but grew in all parameters. Big financers face big defaults that are industryrelated in an increasingly interconnected global economy and are so humongous in nature,they can wipe out the big financiers themselves. However, this is not the case with MFIs.Micro finance still hums, despite global financial crisis because it is somewhat resistantto some of the volatility now plaguing the financial markets. That's because the MFI'scustomers work on projects unaffected by large-scale global banking woes.
Big financiers lend to the most credit worthy corporations against collateral securityand they fail while we lend to poor women whom nobody in history considered credit worthy.However, these so-called non-bankable clients are paying their loans with thelowest default rate in the industry.
Why so? What lessons do the big financiers have to take from MFI's. Well the lessonhere is that lending against collateral security can blind you, and the need for checkingthe capacity for repayments is sometimes overlooked. When the value of the collateralsecurity comes crumbling down, the giants who has borrowed trillions of dollars also comesdown like a house of cards.
We at Arman do not just depend on the collateral. We access the cash flow of borrowersand leave cushion to ensure repayment. Our loans sizes are small that are well within therepayment capacity of the borrower. and they qualify for little higher loan if they repaythe first loan. Secondly, we do not have brokers in Micro finance who can fiddle withdocuments and data for the loan sanction. What we have is fixed rate of interest rate andfixed higher ceiling. Our Field Officers are trained to ensure that loans do not exceedthe client's repayment capacity.
We only lend to group of ladies where in if one borrower defaults, the whole group ismade responsible. Therefore, other members put social pressure on the defaulter to repaywhich is remarkably effective. This lending model, coined Joint-Liability Group (JLG)model, was established by Dr. Muhammad Yunus and the bank he founded, Grameen Bank, whichcreated a new category of banking by granting millions of small loans to poor people withno collateral helping to establish the microcredit movement across the developing world.He won the Nobel Peace Prize for his work related to the Microfinancing. He once quotedthe following; Whatever the banks did, I did the opposite. If banks lent to therich, I lent to the poor. If banks lent to men, I lent to women. If banks made largeloans, I made small ones. Banks required collateral, and my loans were collateral-free. Ifbanks required a lot of paperwork, my loans were illiterate-friendly. If you had to go tothe bank to get a loan, I went to the village. That was my strategy. Arman operatesunder this very same principal.
We at Arman feel that our financial system, which of course is small but sound, hasfailed to reach hundreds of millions of people who are in dire need of credit delivery attheir doorstep. Our challenge will be to move from micro loans to mini loans, which willtransform poor borrowers from objects of pity to objects of envy. We want to act as anintermediary to help people enhance and improve their lives, so every person in India canpursue 'happiness'.
JLG MICROFINANCE OPERATIONS
Arman's Micro Finance operations are in full swing with 14 branches fully operationalall over Gujarat in urban, semi-urban, and rural areas. Arman expects to have 37 branchesfully operational by the end of fiscal 2010-11.
Within 18 month of operations, Arman's has a total disbursement in JLG Microfinanceactivities approaching 12 crore with approximately 12,000 members. Arman expects to havedisbursements of Rs. 50 Crore in microfinance activities by the end of fiscal 2010-11.
All the systems, including H.R., MIS, Accounts, Operations, and Internal Controls havebeen tediously developed and are fully operational.
ASSET-BACKED MICROFINANCE (TWO-WHEELER/THREE-WHEELER FINANCING)
Arman remains committed to its two-wheeler and three-wheeler segment, and is classifiedas the individual assets-backed microfinance by the company.
In the past fiscal year, the company opened new operational branches at Mehsana andBaroda. The total disbursement in asset-backed microfinance equaled approximately Rs. 25crore in the past fiscal year. The business segment had 5315 active borrowers for the yearin review, and the portfolio outstanding stood at approximately Rs. 29 crore.
Arman operates in almost all the major dealers in Ahmedabad, and the financing 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 competitors, thefeedback we receive from the customers, and the amount of repeat customers we get on ayearly basis.
Arman has been rated four times in last four years by very reputed rating agencies ofIndia. In the previous 3 fiscal years, the rating was provided by an agency by the name ofM-Cril from Gurgaon who specializes in rating Microfinance Institutions. Arman hasreceived excellent rating of Alpha Minus all the three times except the last time whenit's financial performance was given Alpha evedencing even a better performance. In thecurrent fiscal year, the rating was provided by CRISIL, a Standard & Poor's companyand India's leading Ratings and Research firm. CRISIL provided Arman a 'BB/Stable' rating.
RESOURCES AND LIQUIDITY
Being a category `A' NBFC registered with R.B.I., Arman is elegible to accept thepublic deposits, but the company did not accept any deposits from public and does notintend to accept public deposits in the near future. The company continues to enjoy a highreputation with institutional fund providers and rating agencies. Arman enjoys variouscredit facilities, including cash credit and term loans, from various banks like StateBank of India, HDFC Bank Ltd, SIDBI, Axis Bank, ICICI Bank Ltd., IDBI Bank, State Bank ofPatiala, United Bank of India, and Ananya Finance (FWWB).
In addition, Board of Directors of the Company at its meeting held on June 17, 2010,has taken the decision to issue equity shares on right basis.
RISK AND CONCERNS
The Company's risk philosophy involves the developing and maintaining a healthyportfolio within its risk appetite and the regulatory framework. While the company isexposed to various types of risk, the most important among them are credit risk, marketrisk (which includes liquidity risk and price risk) and operational risk. The measurement,monitoring management of risk remains key focus areas for the company. For credit risk,distinct underwriting policies and processes are in place, separately for retail creditand micro financing exposures. Business and revenue growth have therefore to be weighed inthe context of the risks implicit in the finance company's business strategy.
In retail loan businesses, the credit cycle is managed through appropriate front-endcredit, operational and collection processes. For credit exposures, management of creditrisk is done through target market definition, appropriate credit approval processes, ongoing post-disbursement monitoring and remedial management procedures. Overall portfoliodiversification and reviews also facilitate mitigation and management.
The company manages the credit risk through prudent selection of clients, delegation ofappropriate lending powers and by stipulating various prudential limits. Arman maintains aconservative approach and the process undergoes thorough scrutiny by higher-levelmanagement executives. Given the granularity of individual exposures, retails credit riskis managed largely on a portfolio basis, cross various products and customer segments.
SECRETARIAL COMPLIANCE CERTIFICATE
The Members of
ARMAN FINANCIAL SERVICES LTD
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 2010. 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 thiscertificate, as per the provisions and the rules made thereunder and all entries thereinhave been duly recorded :
2. The company has duly filed the forms and returns as stated in Annexure 'B' to thiscertificate, with the Registrar of Companies under the Act and the rules made thereunder.No other forms / documents are required to be filed with Regional Director, CentralGovernment, Company Law Board or other authorities.
3. The company, being public limited company, the comments are not required.
4. The Board of Directors duly met 07 (SEVEN) times on 30.04.2009, 14.07.2009,21.07.2009, 28.10.2009, 03.12.2009, 28.01.2010 and 27.02.2010 in respect of whichmeetings' proceedings were properly recorded and signed including the circular resolutionspassed in the Minutes book maintained for the purpose :
5. The company has closed its Register of Members from 21.09.2009 to 25.09.2009 duringthe year under scrutiny and necessary compliance under Section 154 of the Act has beenmade.
6. The annual general meeting for the financial year ended on 31.03.2009 was held on25.09.2009 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) not made any allotment of shares and delivered all the Certificates on lodgmentthereof for transfer / transmission or any other purpose in accordance with the provisionsof the Act.
(ii) Not declared any dividend during the year under review.
(iii) Not declared any dividend during the year and therefore payment/postage ofwarrants and transfer of dividend is not applicable.
(iv) Transfer of unpaid dividend, pending application money for allotment, unpaid /matured unclaimed deposits etc is not applicable as there is no such amount pending withthe company for the year under review.
(v) duly complied with the requirements of Section 217 of the Act;
14. The Board of Directors of the company is duly constituted and the appointment ofdirectors, additional directors, alternate directors and directors to fill casualvacancies have been duly made ;
15. The Company has not made any appointment of Managing director and Executivedirector or Manager during the financial year under review.
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 not issued any shares/debentures/other securities during thefinancial year.
20. The company has not bought back any shares during the financial year ending31.03.2010.
21. The company has not issued any preference shares/debentures till date.
22. The company has not issued any dividend, right shares and bonus shares during theyear and therefore it is not required to keep in abeyance any such rights to dividend,rights shares and bonus shares pending registration of transfer of shares.
23. The company has not accepted any pubic deposits during the year and there are nopublic deposits outstanding as on 31.03.2010 and therefore compliance of Section 58A/58AAis not applicable.
24. The amount borrowed by the Company from Directors, banks, financial institutionsduring the financial year ended 31.03.2010 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 annual / Extra ordinary 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, necessary Register of Investment is maintained for the Investment made by thecompany in compliance with the provisions of the Act;
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 the yearunder scrutiny.
27. The company has not altered the provisions of the Memorandum with respect to theobjects 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 to ProvidentFund with the prescribed authorities pursuant to the provisions of Section 418 of theAct..
|FOR BALVANTSINH J. VAGHELA || |
|PLACE : AHMEDABAD ||COMPANY SECRETARY |
|DATE : 12.07.2010 ||B. J. VAGHELA |
| ||CP 2186 |
| ||ANNEXURE – A |
|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 Transfer || |
|9. Register of Directors' attendance for Board Meeting || |
|10. Register of Directors' attendance for Committee Meetings || |
|11. Register of Directors' interest || |
ANNEXURE – B
|Sr No. ||Particulars of Form ||Form No ||Under Section ||Date of Filing ||Receipt / Challan No |
|1 ||Intimation of Auditors Appointment for FY 2008-09 ||23B ||224(1A) ||07.04.2009 ||S00372995 |
|2 ||Creation of Hypo charge in favour of IDBI Bank Ltd for Rs. 300.OO lacs. ||8 ||125 ||13.04.2009 ||A59743666 |
|3 ||Satisfaction of Charge of UTI Bank for Rs.200.00 lacs ||17 ||138 ||15.04.2009 ||A59910711 |
|4 ||Creation of Hypo charge in favour of SIDBI For Rs.100.00 lacs ||8 ||125 ||22.04.2009 ||A60403615 |
|5 ||Creation of Hypo charge in favour of United Bank of India For Rs.500.00 lacs ||8 ||125 ||29.07.2009 ||A66144049 |
|6 ||Compliance Certificate for F.Y. 2008-09 ||66 ||383 ||06.10.2009 ||P35396985 |
|7 ||Annual Report - Balance Sheet FY 2008-09 ||23AC ||220 ||23.10.2009 ||P37052578 |
|8 ||Annual Report - Profit & Loss Account FY 2008-09 ||23ACA ||220 ||23.10.2009 ||P37052578 |
|9 ||Intimation in change of Designation of Director - Shri Amit Manakiwala WTD to ordinary Director ||32 ||303(2) ||09.11.2009 ||A72351786 |
|10 ||Creation of Hypo charge in favour of State Bank of Patiala For Rs. 300.00 lacs ||8 ||125 ||12.11.2009 ||A72612153 |
|11 ||Annual Return as at 25.09.2009 ||20B ||159 ||16.11.2009 ||P40996340 |
|12 ||Creation of Hypo charge in favour of AXIS Bank For Rs. 300.00 lacs ||8 ||125 ||14.12.2009 ||A74542077 |
|13 ||Intimation of Auditors Appointment for FY 2009-10 ||23B ||224(1A) ||24.11.2009 ||SO1909258 |
|14 ||Satisfaction of Charge of HDFC Bank for Rs. 200.00 lacs. ||17 ||138 ||11.01.2010 ||A76164078 |
|15 ||Resignation of Shri Nilesh Trivedi as Director and Appointment of Shri Lokesh Singh as Director ||32 ||302(2) ||06.02.2010 ||A78020369 |
|16 ||Satisfaction of Charge of SIDBI for Rs. 100.00 lacs ||17 ||138 ||10.03.2010 ||A80223654 |
|17 ||Satisfaction of Charge of Sarvodaya Com Co-op Bank for Rs. 122.00 lacs ||17 ||138 ||25.03.2010 ||A81406480 |