Bajaj Finserv Ltd Directors Report.

At the outset, your Companys Board of Directors commiserates with the families of all employees, shareholders and others who succumbed to this dreadful COVID-19 pandemic.

Your directors present their 14th Annual Report along with the audited standalone and consolidated financial statements for the year ended 31 March 2021. This Report read with the Management Discussion and Analysis includes the details of macro-economic scenario, Companys performance, various initiatives by the Company as well as its approach to risk management.

Circulation of Annual Reports in electronic form

The Ministry of Corporate Affairs (MCA) through circulars dated 8 April 2020, 13 April 2020, 5 May 2020 and 13 January 2021, read with SEBI circulars dated 12 May 2020 and 15 January 2021, have provided an option to companies to conduct AGM during the calendar year 2021 through VC or OAVM and send financial statements (including Directors report, Auditors Report and other documents to be attached therewith) through email.

Accordingly, the financial statements (including Directors Report, Corporate Governance Report, Management Discussion & Analysis, Auditors Report and other documents to be attached therewith) are being sent through electronic mode to those shareholders whose email addresses are registered with the Companys share transfer agent viz., KFin Technologies Private Ltd. (KFin)/Depository Participants, and whose names appear in the Register of Members as on Friday, 18 June 2021. The Company has also made arrangements for those shareholders who have not yet registered their email addresses to get the same registered by following the procedure prescribed in the Notice of Annual General Meeting (AGM).

The Annual Report for the year ended 31 March 2021 is also available on Companys website https://www.bajajfinserv.in/ finserv-investor-relations-annual-reports

Financial results

The financial results of the Company are elaborated in the Management Discussion & Analysis Report.

The highlights of the standalone financial results are as follows:

(Rs.In Crore)
Particulars FY2021 FY2020
Total income 392.03 815.16
Total expenses 146.93 133.28
Profit before tax 245.10 681.88
Tax expense 66.32 15.02
Profit for the year 178.78 666.86
Earnings per share (H) 11.2 41.9

Closing balances in reserve/other equity

(Rs.In Crore)
Particulars FY2021 FY2020
Securities premium account 929.27 929.26
General reserve 1,197.14 1,197.14
Share based payments reserve 102.90 32.45
Treasury shares (184.22) (200.17)
Retained earnings 1,676.26 1,497.18
Total 3,721.35 3,455.86

Note: Detailed movement of above reserves can be seen in Statement of Changes in Equity.

The highlights of the consolidated financial results are as follows:

(Rs. In Crore)
Particulars FY2021 FY2020
Total income 60,591.57 54,351.47
Total expenses 50,729.05 46,050.47
Profit before tax 9,862.34 8,301.66
Tax expense 2,494.96 2,308.06
Profit after tax 7,367.38 5,993.60
Profit attributable to non-controlling interests 2,896.92 2,624.47
Profit for the year 4,470.46 3,369.13
Earnings per share (Rs.) 280.9 211.7

Presentation of standalone and consolidated financial statements

The financial statements of the Company for FY2021, on a standalone and consolidated basis, have been prepared in compliance with the Companies Act, 2013 (the Act) applicable Accounting Standards and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and amendments thereto, (SEBI Listing Regulations) and are disclosed in accordance with Schedule III of the Act. The consolidated financial statements incorporate the audited financial statements of the subsidiaries and joint ventures of the Company.

Indian Accounting Standards, 2015

The annexed financial statements comply in all materials aspects with Indian Accounting Standards (Ind AS) notified under section 133 of the Act, Companies (Indian Accounting Standards) Rules, 2015 and other relevant provisions of the Act.

Dividend distribution Policy

As mandated under regulation 43A of SEBI Listing Regulations, the Board of Directors of the Company at its meeting held on 27 October 2016 adopted a Dividend Distribution Policy for the Company, which sets out the parameters and circumstances that will be taken into account by the Board in determining the distribution of dividend to its shareholders. The said Policy is placed on Companys website www.bajajfinserv.in/miscellaneous-divident-policy.pdf

Dividend

The Directors recommend for consideration of shareholders at the ensuing AGM, payment of a dividend of H 3 per equity share (60%) of face value of H 5 each for the year ended 31 March 2021 amounting to H 47.74 crore. The dividend recommended is in accordance with the principles and criteria as set out in the Dividend Distribution Policy of the Company.

For the year ended 31 March 2020, the dividend paid was H 5 per equity share (100%) of face value of H 5 each.

The amount of dividend and the tax thereon aggregated to H 79.57 crore.

In view of the amendment to the Income Tax Act, 1961 through the Finance Act, 2020, imposition of Dividend Distribution Tax has been abolished. The dividend, if declared at the ensuing AGM will be taxable in the hands of the shareholders of the Company. For further details on taxability, please refer to Notice of AGM.

COVID-19 pandemic

The COVID-19 pandemic which is a once in a lifetime occurrence has brought with it an unimaginable suffering to people and to almost all sections of the economy. The nationwide lockdowns to curtail the transmission of disease, had put the global economy in extreme stress of the level not seen since the Great Depression and would have a long-lasting economic impact. The recent surge in infections that started with the second wave beginning in early March 2021 brings with it greater challenges. The impact of the above on the performance of the Company and its subsidiaries have been discussed in detail in Management Discussion and Analysis.

Employee stock option scheme

The Company grants share-based benefits to eligible employees with a view to attract and retain talent, align individual performance with the Companys objectives and promoting increased participation by them in the growth of the Company. During the year 2018-19, the Company adopted the Bajaj Finserv Ltd. Employee Stock Option Scheme 2018 (BFS-ESOS) on 19 July 2018 and since then there has been no change in the scheme. The BFS ESOS is in compliance with SEBI (Share Based Employee Benefits) Regulations, 2014, and the same has been certified by the Statutory Auditors of the Company.

In line with regulation 14 of SEBI (Share Based Employee Benefits) Regulations, 2014, a statement giving complete details as at 31 March 2021, is available on the Companys website www.bajajfinserv.in/miscellaneous

Grant wise details of options vested, exercised and cancelled are provided in the notes to the standalone financial statements. The Company has not issued any sweat equity shares or equity shares with differential voting rights during the year 2020-21.

Share capital

The paid-up equity share capital as on 31 March 2021 was H 79.57 crore consisting of 159,137,444 fully paid-up equity shares of face value of H 5 each. During the Rights Issue of equity shares made by the Company in 2012, certain shares had been kept in abeyance as required by law. With resolution of a few cases during the year under review, the Company has allotted 154 equity shares of the face value of H 5 each at the original Rights Issue price of H 650 per share to the eligible shareholders.

There was no public issue, rights issue, bonus issue or preferential issue, etc. during the year under review.

Classification as a Core Investment Company (CIC)

Under the Master Direction - Core Investment Companies (Reserve Bank) Directions, 2016, the Company is termed as an Unregistered Core Investment Company (CIC) as per Reserve Bank of India Guidelines dated 13 August 2020.

Operations

Detailed information on the operations of the different business lines and state of affairs of the Company are covered in the Management Discussion and Analysis Report.

Subsidiaries and joint venture

Following are the subsidiary and joint venture companies of the Company as at 31 March 2021:

Name of the company % Shareholding Status
Bajaj Allianz Life Insurance Company Ltd. (BALIC) 74% Subsidiary
Bajaj Allianz General Insurance Company Ltd. (BAGIC) 74% Subsidiary
Bajaj Finance Ltd. (BFL) 52.74% Subsidiary
Bajaj Finserv Direct Ltd. (100% subsidiary of Bajaj Finserv Ltd.) 100% Subsidiary
Bajaj Finserv Health Ltd. (100% subsidiary of Bajaj Finserv Ltd.) 100% Subsidiary
Bajaj Housing Finance Ltd. (BHFL) (100% subsidiary of Bajaj Finance Ltd.) - Subsidiary
Bajaj Financial Securities Ltd. (100% subsidiary of Bajaj Finance Ltd.) - Subsidiary
Bajaj Allianz Financial Distributors Ltd. 50% Joint Venture
Bajaj Allianz Staffing Solutions Ltd. (100% subsidiary of Bajaj Allianz Financial Distributors Ltd.) - Joint Venture

Detailed information on the performance and financial position of each subsidiary/joint venture of the Company is covered in the Management Discussion and Analysis and in Form AOC-1 of consolidated financial statements.

The financial statements of the subsidiary companies are also available on the Companys website https://www.bajajfinserv.in/finserv-investor-relations-annual-reports

The Companys Policy for determination of material subsidiary has been placed on the Companys website https://www.bajajfinserv.in/policy-for-material-subsidiaries-13march.pdf

In terms of the said Policy BFL, BAGIC, BALIC and BHFL are material subsidiaries of the Company. During the year under review, no company became or ceased to be our subsidiary or joint venture company. The Company does not have any associate company.

Inclusion in S&P BSE Sensex

With effect from 22 June 2020, the Company has been included in the prestigious S&P BSE Sensex index of BSE Ltd.

Adoption of Confederation of Indian industry (CII) charters

The Company has established several policies covering the Code of Conduct for its directors and employees including anti-corruption clauses, as well as policies for fair and responsible workplace practices. These policies are integrated into business operations. The Company has also signed the following charters of CII in this regard, which further strengthens the Companys commitment to these policies.

1. Model Code of Conduct for Ethical Business Practices.

2. Charter on Fair & Responsible Workplace Guidelines for Collaborative Employee Relations.

3. Charter on Fair & Responsible Workplace Guidelines for Contract Labour.

Further details are available in our Business Responsibility Report.

Annual return

A copy of the annual return as provided under section 92(3) of the Act, in the prescribed form, which will be filed with the Registrar of Companies/MCA, is placed on Companys website https://www.bajajfinserv.in/finserv-shareholder-download

Number of meetings of the Board

Six (6) meetings of the Board were held during the year under review as against the statutory requirement of four meetings. Details of the meetings and attendance thereat forms part of the Corporate Governance Report.

Directors responsibility statement

The financial statements are prepared in accordance with the provisions of the Act and guidelines issued by SEBI and the Indian Accounting Standards (Ind AS) under historical cost convention on accrual basis except for certain financial instruments, which are measured at fair values. Accounting policies have been consistently applied except where a newly issued Accounting Standard is initially adopted or a revision to an existing Accounting Standard requires a change in the accounting policy. These form a part of the Notes to the Financial Statements.

In accordance with the provisions of section 134(3)(c) of the Act and based on the information provided by the Management, the directors state that:

(i) in the preparation of the annual accounts, the applicable Accounting Standards have been followed along with proper explanation relating to material departures;

(ii) 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 year ended 31 March 2021;

(iii) 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;

(iv) they have prepared the annual accounts on a going concern basis;

(v) 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

(vi) 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 their declaration of independence, as required under section 149(7) of the Act, stating that they meet the criteria of independence as provided in section 149(6) of the Act and regulation 16 of SEBI Listing Regulations. The independent directors have also confirmed compliance with the provisions of rule 6 of Companies (Appointment and Qualifications of Directors) Rules, 2014, as amended, relating to inclusion of their name in the databank of independent directors.

The Board took on record the declaration and confirmation submitted by the independent directors regarding the meeting the prescribed criteria of independence, after undertaking due assessment of the veracity of the same as required under regulation 25 of SEBI Listing Regulations.

Policy on directors appointment and remuneration

The salient features of the Remuneration 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/ remuneration-policy-21.pdf

Particulars of loans, guarantees or investments

Information regarding loans, guarantees and investments covered under section 186 of the Act are detailed in the financial statements.

Related party transactions

No Related Party Transactions (RPTs) were entered into by the Company during the year under review which could have attracted the provisions of section 188 of the Act. Further, there being no material RPTs as defined under regulation 23 of SEBI Listing Regulations, there are no details to be disclosed in form AOC-2 in that regard.

During the year 2020-21, pursuant to section 177 of the Act and regulation 23 of SEBI Listing Regulations, all RPTs were placed before the Audit Committee for its prior approval. These were reviewed by the Audit Committee on quarterly basis. Details of transactions with related parties during the year under review are provided in the notes to the financial statements. All related party transactions during the year were conducted at arms length and were in the ordinary course of business.

The revised Policy on materiality of RPTs and also on dealing with RPTs have been formulated by the Board at its meeting held on 16 July 2014 and amended on 14 October 2014. The Policy was further amended on 12 March 2019, inter alia, by stipulating threshold limits. The said Policy is available on Companys website https://www.bajajfinserv.in/bfs-signed-material-rpt-policy-12-march-2019.pdf

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 and technology absorption

Particulars regarding conservation of energy are as follows:

The Company is engaged in wind-farm activities in addition to its financial services activities. A summary of the performance of the wind power division is available in the Management Discussion and Analysis Report which forms part of this Annual Report. Being essentially a financial services company, no particulars regarding technology absorption are required to be given in this Report.

Steps taken to conserve energy and utilise alternate sources of energy:

The Company has installed a renewable energy (wind) project with a capacity of 65.2 MW. During the year under review, it generated 639 lakh units, which it sold to third parties.

It, however, is unable to make captive use of wind energy, because new regulations do not permit the same where monthly demand is less than 700 KW. The Company has installed LED lamps in place of tube lights and CFL, thereby reducing energy consumption in lighting by around 3,338 units during the year.

The Company implements various energy conservation measures and initiatives which are highlighted in the Business Responsibility Report of the Company.

Foreign exchange earnings and outgo

Total foreign exchange earned by the Company was nil during the year under review, as well as during the previous year. Total foreign exchange outflow during the year under review was H 0.88 crore, as against H 0.64 crore in the previous year.

Risk Management Policy

Information on the development and implementation of a Risk Management Policy for the Company including identification, assessment and control of elements of risk, which in the opinion of the Board may threaten the existence of the Company, is given in the Corporate Governance Report.

Corporate Social Responsibility (CSR)

The CSR Committee comprises of three directors viz., Sanjiv Bajaj, Dr. Naushad Forbes and Anami Roy. During the year 2020-21, the Committee met once. The attendance record of members is given in the Annual Report on CSR activities. Section 135 of the Act and the Companies (Corporate Social Responsibility Policy) Rules, 2014 have been amended substantially with effect from 22 January 2021.

In terms of the provisions of the Act read with amended Companies (Corporate Social Responsibility Policy) Rules, 2014, the Annual Report on CSR activities in the format prescribed under Annexure II of the said Rules is annexed to this Report.

In line with the said amendments, the Board, at their meeting held on 28 April 2021, amended the existing CSR Policy.

The Policy including the composition of the CSR Committee is uploaded on the Companys website https://www.bajajfinserv.in/policies-and-codes

The Chief Financial Officer has certified that the funds disbursed have been utilised for the purpose and in the manner approved by the Board for FY2021.

Formal annual evaluation of the performance of the board, its committees, chairperson and individual directors

Information on the manner in which a 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 Corporate Governance Report.

Directors and key managerial personnel-changes

A. Director liable to retire by rotation

The independent directors hold office for a fixed term not exceeding five years from the date of their appointment and are not liable to retire by rotation. The Act, mandates that at least two-thirds of the total number of directors (excluding independent directors) shall be liable to retire by rotation and one-third of such directors shall retire from office at every AGM. Accordingly, Madhur Bajaj (DIN 00014593), director, being the longest in the office among the three (3) directors liable to retire by rotation, retires from the Board this year and, being eligible, has offered his candidature for reappointment. Prescribed details of Madhur Bajaj are given in the Notice of AGM.

B. Key Managerial Personnel

There was no change in Key Managerial Personnel during the year under review.

As per the requirements of SEBI Listing Regulations, details of all pecuniary relationship or transactions of the non-executive directors vis-a-vis the Company are disclosed in the Corporate Governance Report.

Significant and material orders passed by the regulators or courts

During the year under review, no significant or material orders passed by any regulator or court or tribunal, impacting the going concern status and Companys operations in future.

Internal audit

At the beginning of each financial year, an audit plan is rolled out after it has been approved by the Companys Audit Committee. The 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 and 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 on quarterly basis.

Details of internal financial controls with reference to the financial statements

The Company has documented its internal financial controls considering the essential components of various critical processes, both physical and operational. This includes its design, implementation and maintenance along with periodic internal review of operational effectiveness and sustenance, and whether these are commensurate with the nature of its business and the size and complexity of its operations.

This ensures orderly and efficient conduct of its business, including adherence to the Companys policies, safeguarding of its assets, prevention of errors, accuracy and completeness of the accounting records, the timely preparation of reliable financial information and prevention and detection of frauds and errors. Internal financial controls with reference to the financial statements were adequate and operating effectively.

Maintenance of cost records

Provisions relating to maintenance of cost records as specified by the Central Government under section 148 of the Act, are applicable to the Company. These have been complied with for FY2021.

Statutory disclosures

The financial statements of the Company and its subsidiaries are placed on the Companys website https://www.bajajfinserv.in/finserv-investor-relations-annual-reports

Details as required under section 197(12) of the Act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 containing, inter alia, ratio of remuneration of directors and KMP to median remuneration of employees, percentage increase in the median remuneration are annexed to this Report.

Details of top ten (10) employees in terms of the remuneration and employees in receipt of remuneration as prescribed under rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, containing details prescribed under Rule 5(3) of the said Rules, 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.

The directors responsibility statement as required by section 134(5) of the Act, appears in this report.

There is no change in the nature of business of the Company during FY2021.

A Cash Flow Statement for FY2021 is attached to the Balance Sheet.

Pursuant to the legislation The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, the Company has a Policy on Prevention of Sexual Harassment at Workplace and has constituted an Internal Complaints Committee. There was no case reported during the year under review.

Corporate governance

Pursuant to SEBI Listing Regulations, a separate chapter titled Report on 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 the year 2020-21. A declaration to this effect signed by the Chairman & Managing Director of the Company is included in this Annual Report.

The Chairman & Managing Director and Chief Financial Officer have certified to the Board with regard to the financial statements and other matters as required under regulation 17(8) of SEBI Listing Regulations.

A certificate from the statutory auditors of the Company regarding compliance of conditions of corporate governance is annexed to this Report.

Business Responsibility Report

Regulation 34(2) of SEBI Listing Regulations, inter alia, provides that the annual report of the top 1000 listed entities based on market capitalisation (calculated as on 31 March of every financial year) shall include a Business Responsibility Report (BRR) describing the initiatives taken by them from an environment, social and governance perspective.

Since Bajaj Finserv is such a listed entity, the Company, as in the previous years, has presented its BRR for 2020-21, which is part of this Annual Report.

This BRR highlights the initiatives, actions, processes and the way the Company and its subsidiaries conducts its business in line with its environmental, social and governance obligations.

As a green initiative, this BRR, has been placed on the Companys website https://www.bajajfinserv.in/finserv-investor-relations-annual-reports

A copy of the BRR will be made available by email to any shareholder 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 (SS-1) and general meetings (SS-2) read with the MCA circulars granting exemptions in view of the COVID-19 pandemic.

Auditors

Statutory auditor

In terms 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 10th AGM till the conclusion of the 15th AGM. The statutory auditors have confirmed they are not disqualified from continuing as auditors of the Company.

The statutory audit report for the year 2020-21, is unmodified, does not contain any qualification, reservation or adverse remark or disclaimer by the statutory auditor.

Secretarial auditor

Pursuant to the provisions of section 204 of the Act and the Rules made thereunder, the Board has re-appointed Shyamprasad D Limaye, Practising Company Secretary (FCS No. 1587, CP No. 572), to undertake the secretarial audit of the Company. The secretarial audit report for the year 2020-21 as issued by him in the prescribed form MR-3 is annexed to this Report. Further, pursuant to amendments under SEBI Listing Regulations and SEBI circular dated 8 February 2019, a report on secretarial compliance as required under regulation 24A is being submitted to the stock exchanges as obtained from Shyamprasad D Limaye for FY2021. These reports do not contain any qualification, reservation or adverse remark or disclaimer.

As per regulation 24A of SEBI Listing Regulations, a listed company is required to annex a secretarial audit report of its material unlisted subsidiary to its Annual Report. In line with this and as a green initiative, the secretarial audit report of BALIC, BAGIC and BHFL (though a debt listed company) for FY2021 is placed on Companys website https://www.bajajfinserv.in/finserv-investor-relations-annual-reports

Cost auditor

Following section 148 of the Act, and the Rules made thereunder, the Board of Directors had, on the recommendation of the Audit Committee, re-appointed Dhananjay V Joshi & Associates (firm registration no. 000030), Cost Accountants, to audit the cost accounts of the Company for FY2022 on a remuneration of H 65,000 plus taxes, out-of-pocket, travelling and living expenses, subject to ratification by the shareholders at the ensuing AGM.

Accordingly, a resolution seeking members ratification for the remuneration payable to the Cost Auditor is included in the Notice of AGM.

The auditors i.e. statutory auditors, secretarial auditors and cost auditors have not reported any matter under section 143(12) of the Act, and therefore, no details are required to be disclosed under section 134(3)(ca) of the Act.

Acknowledgement

The Board places its gratitude and appreciation for the support and co-operation from its members and other regulators.

The Board also places on record its sincere appreciation for the commitment and hard work put in by the Management and the employees in these trying times.