western india trustee executor coltd Management discussions

THE WESTERN INDIA TRUSTEE AND EXECUTOR COMPANY LIMITED ANNUAL REPORT 2005-2006 MANAGEMENT DISCUSSION AND ANALYSIS Economic Overview The global economy grew 4.8% in 2005, well above its long term average of 3.8%, and is expected to grow at around the same pace in 2006. India and China remain among the fastest growing economies in the world. As pointed out by the IMF in its World Economic Outlook, the world economy has shown considerable resilience to systemic shocks, though there are risks from crude oil prices, inflationary pressures and global current account imbalance. India maintained its strong economic performance for the third successive year. In 2005-06 the economy is estimated to have grown at 8.1%, on top of the 7.5% growth recorded in the previous year. The services sector continued to be the major driver of economic activity, accounting for almost three - fourth of overall GDP growth. Trade, hotels, transport and communications services continued to lead by growing at double digit rates for the third successive year. Satisfactory rainfall contributed to improved growth in agriculture to 2.3% from less than 1% in the previous year. The year also witnessed significant pick-up in overall investment activity, which strengthened industrial performance and has reinforced growth prospects for the current year. Indian Companies raised an unprecedented $ 40 billion in equity and debt, of which $ 25 billion was from overseas by way of depository receipts, convertible bonds and syndicated loans. The outlook for the current year is encouraging. Overall industrial outlook continues to be positive and the services sector is expected to sustain its growth momentum. The strong fundamentals of the economy are reflected in sustained GDP growth, robust inflows of foreign investment and healthy forex reserves. Business Performance: During the year under report, the Debenture Trusteeship Business of the Company remained subdued due to inclination of the corporate sector to avail credit from Banks & FIs at lower interest rate compared to coupon rate on Debentures / Bonds. Also the modalities involved in availing credit from Banks / FIs are somewhat simpler than raising of funds through issue of Bonds / Debentures, given the regulatory framework in the country. Further, a large number of debenture issues were either redeemed or prepaid during the year. However, the reduction in debenture trusteeship business was set off due to moderate increase in security trusteeship business. Incidentally, one of the major business providers of the Company has decided to avail trusteeship services of other trustee companies, which has created adverse impact on the revenue generation capacity of the Company during the year under report. In traditional trusteeship business, 8 new trusts were added during the year under report and the corpus of trust funds rose to Rs. 10.80 Crores as on 31.03.2006 with total 263 Trusts. The portfolio of new trusteeship business is as given below: 31.03.2006 Sr. Particulars No. No. of Issues Amount (Rs. in Crs.) 1. Debenture Trusteeship 186 35,996.41 2. Security Trusteeship 31 10,014.35 3. Securitisation Trusteeship 62 14,386.27 4. Venture Capital Trusteeship 9 7,500.25 Total Business 288 67,897.25 Dividend Your Directors have recommended a dividend at the rate of 100% per cent (Rs. 10/- per share), tax free in the hands of shareholders, subject to approval of shareholders in general meeting. Risk Management Risk is an integral part of every business & your Company is not exception to it. The Company perceives various types of risks viz.: Interest Rate Risk: Where the interest rate fluctuation has a bearing on corporates availing loans at cheaper rates from Banks / FIs thereby avoiding issuance of debts instruments which affects the debenture trusteeship business of the Company. However, your Company has managed to make foray in other types of trusteeship businesses, which mitigates this risks. Industry / Client Concentration Risk: i.e. risk emanating from excessive dependency on any one industry / client. To lessen this risk WITCO has devised the strategy to have clients from different industries / sectors. Compliance Failure Risk: i.e. risk arising out of non compliance of statutory requirements. Your company has in place an internal process to ensure statutory compliance as and when required. Legal compliance is given due importance in the companys management process. Competition Risk: i.e. risk arising from the entities carrying out similar trusteeship businesses. WITCO has studied and anticipated the components of this risk and accordingly groomed its capacities / processes and quality of services to withstand and overcome this risk. Human Resources Our Company believes that its Human Resources are the biggest assets of the organization. Human Resources are becoming more and more critical and its skills and competency needs to be upgraded to address the changing business environment. Your Company now has a solid base of employees. A large number of initiatives have been undertaken to improve the knowledge process and the competencies of the employees. The Company takes pride in the commitment, competence and dedication shown by its employees in all areas of business. Employee relations were good and cordial at all offices of the Company. The Board wishes to place on record its appreciation of the contribution made by all the employees in ensuring high levels of performance and growth. Internal Control Systems and their adequacy Internal control systems are implemented: * To safeguard the Companys assets from loss or damage. * To keep constant check on the cost structure. * To prevent revenue leakages. * To provide adequate financial and accounting controls and implement accounting standards. The Company has proper & adequate system of internal controls. Internal Audit is conducted by independent audit firms at all offices of the. Company. The internal audit reports are complied diligently and are reviewed by the Top Management and adequate remedial measures are taken wherever necessary. In addition to this, annual inspection of all the offices of the Company is carried out by the holding Company i.e. The United Western Bank Limited. The Board of Directors actively reviews the adequacy and effectiveness of internal controls systems and suggests improvements for strengthening them. The Company has a strong Management Information System, which is an integral part of the control mechanism.