Bajaj Finance Ltd Directors Report.
Your directors have pleasure in presenting the thirty-second Annual Report along with the audited standalone and consolidated financial statements for FY2019.
Presentation of financial statements
Ministry of Corporate Affairs (MCA) vide its notification dated 30 March 2016, mandated, Non-Banking Financial Companies (NBFCs) having net worth of rupees five hundred crore or more to comply with the Indian Accounting Standards (Ind AS) in preparation of their financial statements and quarterly financial results for the accounting periods beginning on or after 1 April 2018 with effective transition date of 1 April 2017.
Further, MCA has amended Schedule III to the Companies Act, 2013 (the Act). Vide the amendment, a new division viz., Division III financial statement format has been introduced for NBFCs effective 11 October 2018.
Accordingly, the financial statements of the Company for the year ended 31 March 2019 have been prepared in accordance with Ind AS and revised Schedule III to the Act. The corresponding figures for the year ended 31 March 2018 and opening Balance Sheet as on 1 April 2017 have been recast as per Ind AS and revised Schedule III to the Act. The Company has applied Ind AS 101 First time adoption of Indian Accounting Standards, for transition from previous GAAP to Ind AS. An explanation of how transition to Ind AS has affected the previously reported financial position, financial performance and cash flows of the Company, is detailed in the note no. 51 to the standalone financial statements and note no. 52 to the consolidated financial statements of the Company.
The audited consolidated financial statements have been prepared in compliance with the Act, Ind AS 110 Consolidated financial statements and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the Listing Regulations).
A separate statement containing the salient features of its subsidiaries in the prescribed Form AOC1 is attached to the standalone financial statements.
The highlights of the standalone financial results are as under:
|(Rs In Crore)|
|Net interest income||11,462||8,083||42|
|Total operating expenses||3,951||3,226||22|
|Pre-provisioning operating profit||7,511||4,857||55|
|Impairment on financial instruments||1,476||1,026||44|
|Profit before tax||6,035||3,831||58|
|Profit after tax||3,890||2,485||57|
|Retained earnings as at the beginning of the year||4,788||3,076||56|
|Profit after tax||3,890||2,485||57|
|Other comprehensive income on defined benefit plan||(9)||(5)||80|
|Retained earnings before appropriations||8,669||5,556||56|
|Transfer to reserve fund u/s 45-IC(1) of the RBI Act, 1934||(779)||(530)||47|
|Tax on dividend||(48)||(40)||20|
|Adjustment of dividend to ESOP Trust||1||1|
|Retained earnings as at the end of the year||7,612||4,788||59|
|Due to rounding off, numbers presented in above table may not add up precisely to the totals provided.|
A summary of financial performance of subsidiaries viz; Bajaj Housing Finance Ltd. and Bajaj Financial Securities Ltd. is given below:
Subsidiaries, associate and joint ventures
A. Bajaj Housing Finance Ltd. (BHFL) - A housing finance company, registered with NHB.
BHFL, a wholly owned subsidiary of the Company, started full scale mortgage operations from February 2018 and had assets under management of RS 17,562 crore as on 31 March 2019 as against H 3,570 crore as on 31 March 2018. The Profit after tax for FY2019 of BHFL was
RS 110 crore as against RS 10 crore for FY2018.
B. Bajaj Financial Securities Ltd. (Bfinsec) A stock broking company, registered with SEBI.
The Company acquired the entire shareholding of Bfinsec from its wholly owned subsidiary, BHFL on 10 August 2018 at arms length pricing. The acquisition is intended to support the Companys existing line of business viz; loan against securities, where the Company currently avails services of other depository participants (DP) and stock brokers.
During FY2019, Bfinsec received approval from SEBI to carry on the business as a stock broker and trading membership of BSE Ltd. Bfinsec is in the nascent stage of stock broking and DP business.
The Profit after tax for FY2019 of Bfinsec was RS 1.19 crore as against RS 1.67 crore for FY2018.
None of the subsidiaries mentioned above is a material subsidiary as per the thresholds laid down under the Listing Regulations.
The Company does not have any associate or joint venture company.
Performance and financial position of subsidiaries
A summary of financial performance for FY2019 of the wholly owned subsidiaries i.e., BHFL and Bfinsec is given below:
|BHFL||(Rs In Crore)|
|Net interest income||465||59|
|Total operating expenses||297||44|
|Impairment on financial instruments||25||4|
|Profit before exceptional items||143||11|
|Profit before tax||149||11|
|Profit after tax||110||10|
|Other comprehensive income||(2)|
|Total comprehensive income||108||10|
|(Rs In Crore)|
|Net interest income||2||1|
|Total operating expenses|
|Impairment on financial instruments||-||-|
|Profit before tax||2||1|
|Profit after tax||1||2|
The directors recommend for consideration of the members at the ensuing annual general meeting (AGM), payment of dividend of RS 6 per equity share (300%) of face value of H 2 for FY2019. The amount of dividend and tax thereon aggregate to H 419.46 crore.
Dividend paid for FY2018 was H 4 per equity share (200%) of face value of H 2. The amount of dividend and tax thereon aggregated to H 278.71 crore.
As on 31 March 2019, paidup share capital of the Company stood at RS 1,155,936,776 consisting of 577,968,388 equity shares of face value of H 2 fully paidup.
Increase in borrowing powers
During FY2019, pursuant to section 180(1)(c) of the Act, the Company increased the limit of the borrowing powers of the Board of Directors from RS 100,000 crore to RS 130,000 crore, to meet its growing business needs.
Assets Under Management (AUM) as on 31 March 2019 were H 98,671 crore as compared to
H 78,852 crore as on 31 March 2018, an increase of 25% over the previous year. The consolidated AUM as on 31 March 2019 stood at RS 115,888 crore, an increase of 41% over the previous year.
Loans receivables as on 31 March 2019 were H 95,181 crore as compared to H 75,533 crore as on 31 March 2018, an increase of 26% over the previous year. The consolidated loans receivables as on 31 March 2019 stood at RS 112,513 crore, an increase of 42% over the previous year.
Total income during FY2019 increased to RS 17,401 crore from RS 12,650 crore during FY2018 registering a growth of 38% over the previous year.
Profit before tax for FY2019 was RS 6,035 crore, as against H 3,831 crore for FY2018, an increase of 58% over the previous year. The profit after tax for FY2019 was H 3,890 crore as compared to H 2,485 crore for FY2018, an increase of 57% over the previous year. This has been due to the Companys healthy growth in AUM, net interest margin, operating efficiencies and prudent risk management.
The Company again had an excellent year, aided by strong volume growth across all its lines of business. During FY2019, the Company launched various new products and variants to strengthen its business model and continue its growth momentum.
Consequent to transition to Ind AS in FY2019 with transition/effective date of 1 April 2017, the Company is required to provide for impairment allowance on its financial insruments basis expected credit loss (ECL), calculated using empirical portfolio performance and adjusted for forward looking macroeconomic factors, as prescribed by Ind AS. The overall provisioning so made, continues to be in excess of the extant provisioning norms of RBI for NBFCs.
The Companys impairment provision (ECL) on financial instrument increased from RS 1,026 crore in FY2018 to RS 1,476 crore in FY2019 taking into account the increased business. The Company ended FY2019 with a net NPA of 0.73%.
Details regarding the operations of the different products of the Company and the state of affairs of the Company are covered in the Management Discussion and Analysis.
The extract of annual return as provided under section 92(3) of the Act, in the prescribed form MGT-9 is annexed to this Report and is also hosted on the Companys website https://www.bajajfinserv.in/finance-investor-relation-annual-reports
Number of meetings of the Board
Eight meetings of the Board were held during FY2019. Details of the meetings and attendance thereat forms part of the Corporate Governance Report.
The composition of the Audit Committee is given in the annexed Corporate Governance Report. All recommendations of the Audit Committee were accepted by the Board.
Directors responsibility statement
In compliance of section 134(5) of the Act, the directors state that:
l in the preparation of the annual accounts, the applicable accounting standards have been followed alongwith proper explanation relating to material departures; l they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for the financial year 2018-19; l they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; l they have prepared the annual accounts on a going concern basis; l they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and l they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and are operating effectively.
Declaration by independent directors
The independent directors have submitted a declaration of independence, stating that they meet the criteria of independence provided under section 149(6) of the Act, as amended, and regulation 16 of the Listing Regulations.
The Board took on record the declaration and confirmation submitted by the independent directors regarding them meeting the prescribed criteria of independence, after undertaking due assessment of the veracity of the same in terms of the requirements of regulation 25 of the Listing Regulations.
Policy on directors appointment and remuneration
The Board, at its meeting held on 12 March 2019, has revised the sitting fees from H 50,000 to RS 100,000 and commission from RS 100,000 to H 200,000 payable per meeting to all non-executive directors (including independent directors) for meetings of the Board and/or Committee thereof attended by them on or after 1 April 2019.
The salient features and changes to the policy on directors appointment and remuneration forms a part of the Corporate Governance Report. The said policy is placed on the Companys website https://www.bajajfinserv.in/media/finance/downloads/remuneration-policy.pdf
Particulars of loans, guarantees and investments
The Company, being a non-banking financial company registered with the RBI and engaged in the business of giving loans, is exempt from complying with the provisions of section 186 of the Act in respect of loans and guarantees. Accordingly, the disclosures of the loans given as required under the aforesaid section have not been made in this Report.
During FY2019, the Company made following significant strategic investments:
l BHFL - an amount of H 2,000 crore by subscribing to 2,000,000,000 equity shares of the face value of RS 10 on rights basis.
l Acquisition of 100% shareholding of BFinsec from its wholly owned subsidiary, BHFL by investing an amount of H 20.38 crore.
Further, the Company was allotted 10,534 Series E compulsorily convertible cumulative preference shares of One MobiKwik Systems Pvt. Ltd. (MobiKwik) on 12 April 2019 against the receivables of the Company, pursuant to commercial agreement with MobiKwik, amounting to H 8.67 crore. The total investment in MobiKwik as on the date of this report is approximately H 234 crore.
Information regarding investments covered under the provisions of section 186 of the Act is detailed in the financial statements.
Related party transactions
During FY2019, transactions with related parties were entered with the approval of the Audit Committee in line with provisions of the Act and Listing Regulations. The Audit Committee reviews the said transactions on a quarterly basis.
All related party transactions entered during FY2019 were on an arms length basis and in the ordinary course of business under the Act and not material under the Listing Regulations. None of the transactions required members prior approval under the Act or the Listing Regulations. During FY2019, there were no related party transactions requiring disclosure under section 134 of the Act.
Pursuant to regulation 23 of the Listing Regulations, the Board, at its meeting held on 12 March 2019, revised the policy on materiality of related party transactions and on dealing with related party transactions providing clear threshold limits for various transactions with related parties.
The revised policy is placed on the Companys website https://www.bajajfinserv.in/media/ finance/downloads/policy-on-materiality-of-related-party-transactions.pdf and is also included in the annexed Corporate Governance Report.
Material changes and commitments
There have been no material changes and commitments, affecting the financial position of the Company, which have occurred between the end of the financial year of the Company and the date of this Report.
Conservation of energy
The Company has taken, inter alia, following measures to reduce energy consumption:
l switched from conventional lighting systems to LED lights at most of the branches in metro areas.
l selecting and designing offices to facilitate maximum natural light utilisation.
l use of cloud based virtual servers to increase energy efficiency and data security.
The details pertaining to technology absorption have been explained in the annexed Management Discussion and Analysis.
Foreign exchange earnings and outgo
During FY2019, the Company did not have any foreign exchange earnings and, the foreign exchange outgo amounted to H 35.39 crore (FY2018 - H 31.54 crore).
The Board of Directors have adopted a risk management policy for the Company which provides for identification, assessment and control of risks which in the opinion of the Board may threaten the existence of the Company. The Management identifies and controls risks through a properly defined framework in terms of the aforesaid policy.
Corporate social responsibility
During FY2019, the Company spent H 56.78 crore on corporate social responsibility (CSR) activities as against mandatory expenditure of H 56.59 crore. Detailed information on the CSR policy and CSR initiatives taken during FY2019 and composition of the Committee is given in the annexed Annual Report on CSR activities.
Formal annual evaluation
Information on the manner in which formal annual evaluation has been made by the Board of its own performance and that of its Committees, Chairperson and individual directors is given in the annexed Corporate Governance Report.
Directors and key managerial personnel (KMP)
A. Change in Directorate:
i. Appointment/re-appointment of independent directors:
(a) The Board, at its meeting held on 12 March 2019, based on the recommendation of Nomination and Remuneration Committee, appointed Naushad Forbes and Anami N Roy as additional directors and independent directors for a period of 5 years with effect from 1 April 2019.
(b) At the aforesaid meeting, the Board, considering the report of performance evaluation and based on the recommendation of Nomination and Remuneration Committee, re-appointed the following independent directors for a second term as given below:
|Name of independent director||Tenure of second term|
|1. Nanoo Pamnani||Five years w.e.f. 1 April 2019|
|2. Dipak Poddar||Three years w.e.f. 1 April 2019|
|3. Ranjan Sanghi||Five years w.e.f. 1 April 2019|
|4. D J Balaji Rao||Five years w.e.f. 1 April 2019|
|5. Omkar Goswami||Five years w.e.f. 1 April 2019|
|6. Gita Piramal||Five years w.e.f. 16 July 2019|
In terms of the requirement of regulation 17(1A) of the Listing Regulations, special resolution for appointment/continuation of directorship in the Company of directors who have attained or will attain the age of 75 years forms part of the notice of the ensuing AGM.
Accordingly, resolutions seeking approval of the members for the aforementioned appointments/re-appointments forms part of notice convening the 32nd AGM.
Necessary details regarding their appointment and re-appointment as required under the Act and the Listing Regulations are given in the notice of AGM.
ii. Retirement of independent directors:
D S Mehta and Rajendra Lakhotia had expressed their intention to not continue as independent directors of the Company for another term, due to their other priorities and pre-occupations. Consequently, they have ceased to be directors of the Company from the close of business hours on 31 March 2019. The Board placed on record its appreciation for their valuable contribution during their long association with the Company.
iii. Directors liable to retire by rotation:
Rajiv Bajaj, director, retires by rotation at the ensuing AGM and, being eligible, offers himself for re-appointment. Necessary details for re-appointment as required under the Act and the Listing Regulations is given in the notice of AGM.
B. Change in KMP:
R Vijay was appointed as Company Secretary w.e.f. 1 October 2018 in place of Anant Damle who retired from the services of the Company on 30 September 2018.
Significant and material orders
During FY2019, no significant and material orders were passed by any regulator or court or tribunal impacting the going concern status and Companys operations in future.
At the beginning of each financial year, an audit plan is rolled out after the same has been approved by Audit Committee. The audit plan is aimed at evaluation of the efficacy and adequacy of internal control systems and compliance thereof, robustness of internal processes, policies and accounting procedures, compliance with laws and regulations. Based on the reports of internal audit function process owners undertake corrective action in their respective areas. Significant audit observations and corrective actions thereon are presented to the Audit Committee of Board.
Internal financial controls
The internal financial controls of the Company are commensurate with its size, scale and complexity of operations. The Company has robust policies and procedures which, inter alia, ensure integrity in conducting business, timely preparation of reliable financial information, accuracy and completeness in maintaining accounting records and prevention and detection of frauds and errors.
The internal financial controls with reference to the financial statements were adequate and operating effectively.
Employee stock option scheme
During FY2019, there has been no change in the Employee Stock Option Scheme, 2009 (the ESOP scheme) of the Company. The ESOP Scheme is in compliance with the SEBI (Share Based Employee Benefits) Regulations, 2014 (the SBEB Regulations).
Disclosures pertaining to the ESOP scheme pursuant to the SBEB Regulations are placed on the Companys website https://www.bajajfinserv.in/finance-investor-relation-annual-reports Grant wise details of options vested, exercised and cancelled are provided in the notes to the standalone financial statements.
During FY2019, the Company accepted public deposits of H 5,778 crore. Public deposits outstanding as at the end of the year aggregated to RS 6,828 crore. As on 31 March 2019, there were five FDs amounting to RS 6.67 lakh which had matured and remained unclaimed and interest on matured deposits amounting to H 2.14 lakh had also remained unclaimed.
Pursuant to provisions of the RBI Act, 1934, the Company has created a charge on statutory liquid assets amounting to RS 1,029.23 crore in favour of the trustee for FD holders.
During FY2019, the Company accepted inter corporate deposits (ICDs) of RS 6,364 crore. ICDs outstanding as on 31 March 2019 were RS 6,365 crore.
Overall deposits outstanding as on 31 March 2019 were RS 13,193 crore, contributing to approximately 15% of overall borrowings.
During FY2019, there was no default in repayment of deposits or payment of interest thereon.
The brief details of the ratings received from credit rating agencies by the Company for its outstanding instruments is given in the annexed General Shareholder Information.
The Company continues to fulfill all the norms and standards laid down by the RBI pertaining to nonperforming assets, capital adequacy, statutory liquidity assets, etc. As against the RBI norm of 15%, the capital to risk-weighted assets ratio of the Company was 20.66% as on 31 March 2019. In line with the RBI guidelines for asset liability management (ALM) system for NBFCs, the Company has an Asset Liability Committee, which meets monthly to review its ALM risks and opportunities.
The Company is in compliance with the NBFC Corporate Governance (Reserve Bank) Directions, 2015.
Harmonisation of different categories of NBFCs
RBI, vide its circular dated 22 February 2019, harmonised different categories of NBFCs into fewer ones on the basis of the principle of regulation by activity rather than regulation by entity in order to provide greater operational flexibility.
Accordingly, the three categories of NBFCs viz., Asset Finance Companies, Loan Companies and Investment Companies have been merged into a new category called NBFC - Investment and Credit Company.
The Company now is categorised as NBFC- Investment and Credit Company.
l A summary of the key financials of the Companys subsidiaries is included in this Annual Report. A copy of audited financial statements for each of the subsidiary companies will be made available to the members of the Company, seeking such information at any point of time. l The audited financial statements for each of the subsidiary companies are available for inspection by any member of the Company at the registered office and at corporate office of the Company during 10.00 a.m. to 12.30 p.m. except holidays. l The financial results of the Company are placed on the Companys website https://www.bajajfinserv.in/finance-investor-relations-financial-information l Details required under the provisions of section 197(12) of the Act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are annexed to this Report. l Details required under the provisions of section 197(12) of the Act read with rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, which form part of the Directors Report, will be made available to any member on request, as per provisions of section 136(1) of the Act. l The directors responsibility statement as required by section 134(5) of the Act, appears in a preceding paragraph. l Pursuant to the provisions of the Act, no fraud was reported by auditors of the Company during FY2019. l The Company being an NBFC, the provision relating to Chapter V, i.e., acceptance of deposit, of the Act, are not applicable. Disclosures as prescribed by NonBanking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 and other NBFC regulations have been made in this Annual Report. l Pursuant to RBI Master Direction-Information Technology Framework for the NBFC sector, the Company has constituted an IT Strategy Committee to review the IT strategies in line with its corporate strategies, cyber security arrangements and any other matter related to IT governance. l The provision of section 148 of the Act, are not applicable to the Company. Accordingly, there is no requirement of maintenance of cost records as specified under section 148(1) of the Act. l Cash Flow Statement for FY2019 is attached to the Balance Sheet. l The Company has a policy on prevention of sexual harassment at the workplace. The Company has complied with the provisions relating to the constitution of Internal Complaints Committee under Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The number of complaints received, disposed of and pending during FY2019 is given in the annexed Corporate Governance Report.
Inclusion in S&P BSE SENSEX
Equity shares of the Company have been included in the S&P BSE SENSEX of BSE Ltd. with effect from 24 December 2018.
Pursuant to the Listing Regulations, a separate section titled Corporate Governance has been included in this Annual Report, along with the Reports on Management Discussion and Analysis and General Shareholder Information.
All Board members and Senior Management personnel have affirmed compliance with the code of conduct for FY2019. A declaration to this effect signed by the Managing Director of the Company is included in this Annual Report.
The Managing Director and the Chief Financial Officer have certified to the Board with regard to the financial statements and other matters as specified in the Listing Regulations.
A certificate from auditors of the Company regarding compliance of conditions of corporate governance is annexed to this Report.
Business responsibility report
Pursuant to the provisions of the Listing Regulations, the Company is required to give Business Responsibility Report (BRR) in the Annual Report.
As a part of green initiative, the BRR for FY2019 has been placed on the Companys website https://www.bajajfinserv.in/finance-investor-relation-annual-reports Physical copy of the BRR will be made available to any members on request.
Secretarial standards of ICSI
The Company has complied with the requirements prescribed under the Secretarial Standards on Meetings of the Board of Directors (SS1) and General Meetings (SS2).
Pursuant to the provisions of section 139 of the Act, S R B C & CO LLP, Chartered Accountants, (Firm Registration No. 324982E/E300003) were appointed as statutory auditors of the Company to hold office from the conclusion of the 30th AGM of the Company till the conclusion of the 35th AGM.
The Audit Report by S R B C & CO LLP, for FY2019 is unmodified, i.e., it does not contain any qualification, reservation or adverse remark.
Pursuant to the provisions of section 204 of the Act, the Board has re-appointed Shyamprasad D Limaye, practising company secretary (FCS No. 1587, CP No. 572), to undertake secretarial audit of the Company.
A report from the secretarial auditor in the prescribed Form MR-3 is annexed to this Report. The same does not contain any qualification, reservation or adverse remark.
In addition to the above and pursuant to SEBI circular dated 8 February 2019, a report on secretarial compliance by Shyamprasad D Limaye for the FY2019 has been submitted with stock exchanges. There are no observations, reservations or qualifications in the said report.
The Board of Directors would like to express its gratitude and its appreciation for the support and cooperation from its members, RBI and other regulators, banks, financial institutions, trustees for debenture holders and FD holders.
The Board of Directors also places on record its sincere appreciation for the commitment and hard work put in by the Management and the employees of the Company and thank them for yet another excellent year.
On behalf of the Board of Directors
Rahul Bajaj Chairman
Pune: 16 May 2019