Can Fin Homes Ltd Management Discussions.

Indian Economic Review

The Government of India (GoI) announced several policies and measures to revive the economy in FY 2019-20. These measures are expected to ensure stability in the economy. Measures such as reduction in corporate tax rate, infusion of H 25000 crore in the real estate sector to boost demand, infusion of H 70,000 crore in public sector banks and reduction in repo rates to provide liquidity in the markets are expected to revive the economy. The Indian economy is currently the 5th largest in the world, with a GDP of US$ 2.9 trillion.

The Indian economy, its businesses and industries have been severely affected by the Corona virus outbreak. Fortunately, in India, Central Government acted very decisively in implementing the National Lockdown early. These early steps proved fruitful as the number of cases and mortality rate are low in comparison with other countries, the world over. Having controlled spread of the virus, Indian Government relaxed Lockdown in a phased manner and immediately announced a plethora of initiatives to ward off the economic rami_cations of Lockdown. In doing so the Government balances the considerations of lives and livelihood with utmost care.

Centres announcement of a massive "20 Lakh Crore Package", focus on Tax Breaks for Small Businesses, as well as incentives for Manufacturers and Agriculturists, including 8.01 lakh Crore of liquidity measures, Collateral free Automatic Loans worth H 3 Lakh Crore to small businesses, H 30000 Crore Special Liquidity Scheme for NBFC, HFCs and MGIS etc., will provide stimulus for growth.

The government and the Reserve Bank of India are working jointly to revive the economy with favourable _scal policies and a monetary stimulus package. The concerted efforts are likely to bring the economy back on track, to register a GDP growth of 7.4% in FY 2021-22.

Enhanced liquidity for NBFCs and HFCs will boost lending. With mergers and improved NPA _gures and larger balance sheets, PSBs are better equipped to relax lending norms to several sectors. Reduced ROI and subsidies will stimulate demand, contributing to accelerated growth and development.

Indian Housing Scenario

Housing, Retail, Hospitality and Commercial Sectors are four pillars of the Real Estate Sector. Growth in this Sector means growth in corporate environment, demand for of_ce space as well as Urban and Semi Urban accommodation. The construction industry is a leading Sector for direct and indirect induced catalyst effect on various Sectors of the Economy. Bengaluru is expected to be the most favoured investment option followed by Ahmedabad, Pune, Delhi and Dehradun.

The Demand for Housing continues to grow, given rapid urbanization, increase in income levels and emergence of nuclear families. The Increase in number of cities with 10 lakh plus population from 35 in 2001 to 53 in 2011 is a clear indication of growth of urbanization. Such an unprecedented expansion of cities has created immense demand for Housing in the country.

The Real Estate sector occupies a prominent position in the economy and is connected with multiple industries. It has gone through transformational changes due to the implementation of Goods and Services Tax (GST), Real Estate Regulation and Development Act (RERA) and demonetization. To meet the housing demand of all sections of society, builders and developers are also being encouraged to undertake affordable housing projects. Reduction in GST rates to 1% for affordable housing and 5% for other projects have also created a positive impact on home buyers.

Driven by strong demand for affordable and mid-segment housing, the top 7 cities witnessed a substantial increase of 21%, in residential launches, on a yearly basis. Developers in Bengaluru, Mumbai, Chennai, Pune, and Kolkata focused on launching new projects with greater vigour. A total of 2.61 lakh new units were launched in the current year and nearly 40% of them were in the affordable segment, followed by 33% in the mid segment.

Growth Drivers for Housing

Rapid increase in Population:

India is home to approx. 1.3 billion people. Population growth is a major underlying factor for housing demand and without new supply of housing units, it results in price escalation for both rented and new house purchases. The Governments objective to build Smart cities and its initiative to ensure Housing for All, provides the much needed impetus to the affordable housing needs of a growing Indian population.

Rapid Urbanization:

Increasing population and swift migration of people from rural to urban areas have led to rapid urbanization of Indian metros. The number of Indians living in urban areas is expected to reach 543 million by 2025. This will result in massive demand for residential properties in urban areas, in the coming years. By 2030, India needs an additional 25 million affordable housing units to cater to its growing urban population. Internationally, India remains among the top 10 countries to register signi_cant price appreciation in the housing markets.

Rise of nuclear families:

Traditionally in India, joint families were the norm, de_ning the familial system for most people residing in the country. However, radical changes have taken place in the Indian family system and nuclear families have become the new norm. This trend has been largely in_uenced by a growing proportion of women in the workforce. The preference for buying homes that are either close to workplaces or offer good connectivity, remains a major consideration for home buyers. In such circumstances, immediate family members tend to move in together, leaving the larger joint family.

Housing for Senior citizens:

The growth of nuclear families is forcing senior citizens to look for new homes. This has given rise to several townships that specially cater to the needs of elderly people. A number of senior citizen housing projects have been planned and the segment is expected to grow signi_cantly in future. According to a study conducted by the Ministry of Commerce and Industry, this segment has potential to reach US$ 7.7 billion by 2030.

Push for Affordable Housing by Central Govt.:

Governments thrust for Affordable Housing is giving a tremendous boost for investment in housing as Developers are also showing interest in Low-Cost Housing Schemes. Governments mission objective of "Housing for All by 2022" and initiatives in this direction will create huge demand for affordable housing.

Availability of abundant Land and Labour in India:

Reasonable rates for land and labour in Tier II and Tier III Cities and Towns have encouraged builders and investors to embrace development of Housing in these Centres in a major way.

Increase in Transport and Infrastructure:

Central Govt. initiatives to improve infrastructure at Tier II and Tier III Cities and Towns have encouraged housing projects in these regions. Migration and reverse migration noticed in the recent past reveal a possible change in the demographic architecture of the country in the future.

Social Status and Sense of Security:

Owning a House has always given a sense of self-worth and a sense of security for the family, which is a great encouragement for an individual to buy residential property.

Easy availability of _nance:

With the rise of NBFCs, availability of _nance for buying new property is no longer a hurdle. The declining interest rates on housing loans have also encouraged buyers to purchase homes, thereby fuelling growth for the housing sector. Moreover, RBIs latest directive to banks and NBFCs to link their interest rates with the repo rate will effectively help customers avail direct benefits of lower rates, as and when the rates are altered.

Rental Housing:

Another segment which offers growth potential in residential housing is Rental Housing. Rental Housing despite being the object of considerable attention and support in developed economies, has largely remained on paper/untouched as a critical component of any housing policy in India. It can act as an alternative solution to ownership housing in India where there is a large population that cannot afford to buy a home, may not qualify for a mortgage or may not want to own a home.

Government Initiatives:

Development of Housing Sector plays a key role generation besides contributing signi_cantly for GDP growth in the Country. Housing has gained true attention and focus in Indian economy as it has profound direct inter-linkages with other industries. In view of its signi_cance, Housing has been a major thrust and a key focus area for Central Government which has responded by taking up a slew of initiatives to boost Housing.

GoI continues to provide necessary impetus to the Real Estate industry, taking into consideration its linkage to other sectors and the huge employment opportunity that it offers. Below are some of the key policies and measures adopted by the Government of India (GoI) to uplift the housing sector:

Introduction of Alternate Investment Fund (AIF): The governments decision to set up the Alternate Investment Fund for the housing sector is a boon for real estate developers. It aims to provide debt _nancing to developers, which would help the sector recover despite a large unsold inventory. The GoI has allocated H 25,000 crore for last-mile funding of stalled affordable and middle-income housing projects across the country.

Tax Benefits: The income tax deduction limit on interest paid on loans taken for affordable housing was increased from H 2 lakh to H 3.5 lakh per annum for self-occupied property valued under H 45 lakh. This deduction is available on loans taken by _rst-time homebuyers, before the end of the FY 2020-21.

Lowering of Goods and Service Tax (GST): GST for affordable housing was reduced from 8% to 1% without Input Tax Credit (ITC) (valued up to H 45 lakh with carpet area under 90 sq. m. in non-metropolitan cities/towns and 60 sq. m. in metropolitan cities). For other projects, GST has been reduced from 12% to 5% and it has increased the con_dence of consumers to avail affordable houses at competitive rates.

Housing for All by 2022: With a growing population, the demand for housing is rising steadily and it is expected to increase further. Earlier, the focus was largely on luxury and mid segment housing, but it is now shifting towards affordable housing. Government Initiatives like Pradhan Mantri Awas Yojana (PMAY) intend to provide affordable housing for all. The Government estimated the housing demand at 1.12 crore units for urban areas. At present, 1.03 crore units have been sanctioned, 60 lakh units are being constructed and 32 lakh units have been completed and delivered till Dec-2019. (Source: Economy Survey FY 19-20)

Smart Cities Mission 2.0: To promote sustainable and inclusive cities that provide core infrastructure and offer improved standards of living, GoI proposed to launch its smart cities project. Under the Ministry of Housing and Urban affairs, the Government previously proposed to build 100 smart cities. But, with the launch of Smart Cities Mission 2.0, the coverage area has been expanded to 4000 cities. The mission is expected to ensure housing for all, build better infrastructure and develop open spaces among other things. The project cost is estimated to be H 2.05 lakh crore and the mission is slated to start from 2020.

Government Support: The Governments Housing For All policy has shown healthy progress with incentives to push demand through Credit Subsidy Schemes for EWS, Low Income Group (LIG), and _rst-time homebuyers in the Middle Income Group (MIG) categories. However, gaps exist in local state level enforcements to push the agenda for making land accessible and aiding public-private partnerships to ensure greater success for ful_lling this objective. The Government is encouraging affordable housing by providing tax breaks, lower GST and infrastructure status. The other benefits included an amount of H 50,000 Cr provided to NHB, CLSS extended up to 31-03-2021, modi_cations to Partial Credit Guarantee Schemes to cover NBFCs, HFIs and MFIs, enabling raising Funds, Re_nancing Limits enhanced by NHB for eligible HFIs etc..

Housing Finance Sector Overview

The real estate industry is on the verge of transformation and the past decade has played a crucial role in shaping the sector. The real estate industry has grown from brick and mortar to a service-driven product offering and the growth of the sector will be largely driven by technological transformations, ever-evolving customer requirements and a favourable policy environment. The sector is expected to reach a market size of US$1 trillion by 2030 and contribute 13% of the countrys GDP by 2025.

In the days ahead, the industry is anticipated to go through a short-term slowdown due to the lockdown imposed on account of the Coronavirus outbreak. The demand slowdown in the residential segment will result in curtailed housing sales, delayed project launches and price corrections in Indias residential sector. The revised price will enable potential buyers to purchase residential houses, resulting in a demand uptick in the sector. Further reduction in GST and tax benefits will also augur well for consumers and the housing sector.

Housing Finance Companies or HFCs are the most important avenues of housing _nance, after banks. At present, 101 HFCs are registered with the NHB, of which 18 accept deposits. Government initiatives like Affordable Housing, credit linked subsidy scheme, and smart cities mission have led to signi_cant growth of HFC and NBFCs. The affordable housing _nance segment remains a major driver of growth as it faces moderate competition from banks and lenders in this segment, due to its ability to lend to informal borrowers as well.

The growth outlook for the sector remains challenging for FY 20-21, due to the Covid-19 outbreak. The RBI has issued a notice to banks and HFCs for moratorium of loans for 3 months, starting from March 2020 to May 2020, and then extended it from June 2020 to August 2020. Looking at the strength of the NBFC and HFC sector and with banks holding suf_cient liquidity, the RBI is con_dent of tackling this situation and it is expected to have a partial impact on the working of HFCs . Going forward, housing _nance credit is expected to pick up due to reduction in interest rates and other benefits aimed at attracting buyers.

Company Overview

Can Fin Homes Ltd. (CFHL), is one of the leading companies in the housing _nance sector, promoted by Canara Bank, a public sector bank. CFHL offers housing loans for individual homes and affordable housing along with composite, and top-up loans. It also offers non-housing loans including mortgage loans, site loans, loans for commercial properties, personal loans, and education loans. Can Fin also accepts Fixed and Cumulative Deposits, as per the rules of the National Housing Bank (NHB).

Can Fin Homes Ltd., has a pan India presence with 165 Branches,

21 Affordable Housing Loan Centres and 14 Satellite Of_ces spread over 21 States and Union Territories. CFHL is a key player in Housing Finance Sector in India and one of the few institutions permitted by the Regulator NHB to accept Public Deposits. The

The sector is expected to reach a market size of US$1 trillion by 2030 and contribute 13% of the countrys GDP by 2025.

Company is extending Housing Loans and Mortgage Loans at competitive interest rates both to Salaried and SENP category of borrowers, designed to cater to their individual needs.

The Companys focus has mainly been on Housing Loans to individuals with 90 % of loan book comprising Housing Loans and 10 % for Non-Housing. Average Age of incremental borrowers is around 40 years and are by and large _rst-time home buyers.

Can Fin Homes Ltd is the _rst housing _nance company to have exclusive Affordable Housing Loan Centres to lend in the peripheral areas of Tier 1, Tier 2 and Tier 3 Cities. Land and Property prices being comparatively less, these areas are conducive for Affordable Housing Loans, Urban and Rural Schemes of CLSS under PMAY. Currently CFHL has 21 AHLCs.

The Objective of CFHL, as it was envisaged when it was instituted 32 year ago, was to promote home ownership and increase housing stock in the country. The noble cause continues. The average ticket size of the loan has remained at 18 lakhs, since affordability level determines the ticket size.

With the objective of providing a house for each and every citizen of India, the Company aims to leverage its reach, scale and varied _nancing options to reach out to people across the country. Therefore, the companys focus is on Middle Income Groups (MIG)

– MIG I and II under the Pradhan Mantri Awas Yojna (PMAY) – Credit Linked Subsidy Scheme (CLSS) which is anticipated to improve affordability for a wider segment of home buyers.

Core Competencies

Diversi_ed solutions: The Company started operation with housing _nance loans and today, offers around 24 different types of loans in its product portfolio, with a focus on varied customer demands. It not only serves the Housing segment, but also its service offerings in the non-housing category aims to attract more customers with competitive interest rates.

Wide Geographic Presence: With a pan India presence, the company has expanded its operations to major cities and towns in India. It further plans to expand its reach in Tier 2 and Tier 3 cities to tap unexplored opportunities. The Company is con_dent about leveraging its existing network and experience, to drive business growth.

Experienced management team: The Companys Board and senior management includes professionals with immense experience in all areas of banking and housing _nance. CFHL senior management is supported by a capable and talented pool of trained personnel in each branch of_ce. The company believes that this will enable them to solicit better quality loan proposals, improve credit appraisal, manage risks better, and provide better quality service to customers.

Strong governance and speedy operations: CFHL focusses on a strong governance framework and ef_cient operating procedures. The company strives to provide faster turnaround time (TAT) to its customers with personalized service and guidance to customers. With transparent processes and post loan sanction services, the company satis_es customer requirements and helps to attract new customers to enable rapid growth.

Technology: CFHL believes that its dependence on latest technology will enable it to deliver enhanced customer experiences while facilitating better customer management. To improve operational ef_ciencies, its systems are linked to a core-banking platform (Integrated Business Suite) under the Application Service Provider (ASP) Model. Further, it aims to implement MPLS links to improve uptime and process documents faster.

Best in class Asset Quality: CFHL has relentlessly focused on improving and maintaining a strong asset quality. It has a direct impact on the Companys provisioning, Protability, net worth and CRAR. The Company engages strong credit underwriting practices and an ef_cient system to constantly monitor branch operations and evaluate risk build up, if any. In addition, CFHLs time-tested risk management systems and procedures have helped to maintain good asset quality.

SWOT Analysis
Strengths
• Geographically well distributed business with 200 Of_ces spread across 21 States and Union Territories. Besides increasing Geographical reach, this has reduced risk of concentration of loans in any particular region. • Parentage of a Strong and Popular PSB with established track record and good Governance
• Diversi_ed loan portfolio under Housing and Non-Housing Loans • Low risk Loan Portfolio dominated by Salaried class and Good Asset Quality
• Well segmented loan portfolio catering to requirements of middle and lower middle-income group • Well Established presence in Tier 2 and Tier 3 Cities where huge amount of investment in infrastructure development is taking place, enabling lending opportunities to residential projects in these areas.
• Faster Turn Around Time for loan approvals.
Weaknesses
• The rates of interest offered are slightly higher than Commercial Banks • Provides financial assistance only based on evidenced income.
Opportunities
• Increasing demand in Sub-Urban and Tier II and Tier III Cities • Central Govt "Housing for all Push for CLSS under PMAY
• Increasing population in Cities • Recent Branch Expansion in Non-Southern States enabling opportunities to be exploited.
• Thrust given by Govt in developing Smart City Concept
Threats
• Stiff competition from public and private banks. • In some cases, Incomes of borrowers affected by lockdown due to Covid-19 may affect borrowers repayment capacity for a while.
• Uncertainties in Real Estate Sector
• Subdued Market due to the impact of Covid-19

Business Segment Overview

Powered by a wide network of branches across the length and breadth of the Country coupled with a dedicated work force, Can Fin Homes Ltd., performed well in major Business Dimensions. The Company is well equipped with portfolio consisting of wide range of Loan Products, under Housing and Non-Housing Loans, tailor made to meet requirements of every customer of the segment it caters to.

Guided by its main objective of improving home ownership in the country, CFHL continued to remain focused purely on retail home loans in LIG and MIG space. By year end under review, Housing Loans constituted 89.73% of the total loan book (89.5% at previous year end) and the segment grew by around 13.13 percentage to reach H 18601.82 Crore, Non Housing Loans at H 2126.79 Crore growing at 9.68 percentage.

Housing Loans and Other loans sanctioned (loan approval) were to the extent of H 5896.83 Crore as against previous years H 5952 Crore, slightly subdued due to impact in the last fortnight of the financial year, on account of Covid-19 Pandemic Lockdowns throughout the Country.

The Loan Portfolio as at March 31, 2020 stood at H 20706 Crore as against H 18381 Crore in the previous year, registering a growth of 13 % YOY. The total Lockdowns countrywide due to Pandemic have pulled down the YOY growth.

The Company crossed milestone mark of 20000 Crore in Loan book size during the year 2019-20.

To capture the growth opportunities the Company has increased its outlets from 189 as at previous year end to 198 at the year end, with increase of 9 Branches during the year. Loan Book of Metros is 63.23% and that of Non-Metros is 36.77%.

The customer pro_le continues to be dominated by Salaried Class and Professional Category. The average ticket size of incremental Housing Loans and Non-Housing Loans are 18 Lakhs and 9 Lakhs respectively.

Loan Products

CFHLs Product Basket comprises Housing Loan for Construction, Purchase of ready built house, Flats and Apartments Under Construction and Finished ones, Repair, Renovation and Upgradation including Extension of the existing units, Site Loans, Composite Loan for Purchase of Site and Construction there on, Loans for Urban and Rural Housing, Affordable Housing Loan Urban, Affordable Housing Loans Rural, Loans for purchase/construction/repairs of individual houses/_ats upto 10 lakhs to borrowers who are getting salary by cash – IHL (Cash Salary) Scheme etc., and Non Housing Loans like mortgage loans, personal loans to existing customers, loans for commercial property, loans for rent receivables, I-Secured Loans for CFHL Customers (funding insurance premium covering Housing Loans/Non Housing loans) etc.,

Deposit Schemes

CFHL is one of very few HFCs with License from NHB to accept Public Deposits. CFHL accepts two types of deposits viz; Fixed and Cumulative Deposits. These schemes are designed by CFHL to cater to the needs of the common man. Senior Citizens are offered 0.5% higher ROI than the Card Rate for Deposits. Minimum Deposit amount for Fixed Deposit Scheme is H 2 Lakh with option for drawing interest Quarterly, Half Yearly and Yearly Periods and H 10 Lakh for Monthly Interest Payment. The minimum Deposit Amount under Cumulative Deposit continues to be H 20000/-.

Marketing and Distribution

Can Fin Homes Ltd., has been continuously strengthening its Marketing and Distribution networks. During the year, CFHL has added 9 outlets at following places: Ballari, Mancherial, Pollachi, Thanjavur, Srikakulam, Theni, Hoskote, Haveri and Solapur.

The Affordable Housing Loan Centres operating at various places have been attracting more business in the Sub-Urban parts of the cities. During the Current Fiscal, CFHL envisages opening 12 number of outlets to further augment its network.

On-line Application Platform has made it convenient for loan aspirants to easily approach us with their requirements. CFHL online Customer Portal has made it convenient for Existing Customers to avail Selected Services without having to visit Branches.

CFHL has a large network of DSAs totalling to 1002 numbers spread throughout the country mobilizing business for CFHL. The Business mobilized by DSAs during FY19-20 is 58% of the total Sanctions.

Funding Mix

CFHL raises its resources for its lending activities by way of term loans, credit lines from Banks, re_nance from National Housing Bank, Money market instruments like Non-convertible debentures(NCDs), Commercial Papers (CPs) and Deposits from retail market. As on 31st March 2020 the borrowing of the company stood at H 18634 Crore.

A. For Deposits: MAAA with a stable outlook, highest credit-quality rating assigned by ICRA

B. For Borrowing From Banks: ICRA AA + Outlook Stable

C. For Debentures: (i) Secured NCD : ICRA AA+ (Outlook Stable) CARE AAA IND AA Stable

D. For Commercial Paper : (ICRA) A1+, CARE A1+, IND A1+

Risks and Concerns

There is no business without inherent Risks. Risk is an integral part of any business. CFHL manages various risks with proper systems and procedures in place. These risks include Credit Risk, Market Risk & Interest Rate Risk, Operational Risk and Liquidity Risk

Credit Risk:

Credit Risk is inherent in any lending activity. Default risk arising when the borrower is not able to make contractual payments.

Mitigation:

CFHL managed Credit Risk through stringent credit norms backed by sound and strategic credit policy. All fresh proposals are subjected to Credit Appraisal Process which includes a comprehensive Credit Risk assessment procedure, standardized for analysing related subjective and objective information of each borrower, in order to optimally ascertain their individual creditworthiness. The services of various credit assessment agencies like the Credit Information Bureau of India Limited (CIBIL), Experian etc., and the Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI) are utilized by the Company to evaluate the potential risk of a New Borrower.

Besides at the entry point, CFHL has a Risk Management Policy where creditworthiness of the existing borrowers is periodically assessed at the time of annual resetting of interest rates and the internal evaluation and monitoring mechanisms set up like Offsite Transaction Monitoring Systems (OTMS) provides required inputs and information for timely remedial action.

SMA Accounts are meticulously reviewed for enabling prudent handling of default accounts since there is need for continued vigil on the asset quality as well as a need to keep the levels at check.

Market Risk and Interest Rate Risk:

Market Risk is a risk arising from external factors such as in_ation, de_ation, demand, supply dynamics which are beyond Companys control. Due to adverse movements in market prices, these factors give rise to risks like funding risk, liquidity risk and interest rate risk.

Mitigation:

Strategic optimisation of short term and long term debt is a key aspect of our borrowing policy along with _xed and _oating rate instruments. Interest rate _uctuations are taken care by the rate sensitive assets which can be re-priced. Moreover all loans granted after April 01, 2017 are subject to annual reset of interest rates.

Liquidity Risk:

Liquidity Risk is a risk of not having suf_cient funds to meet the liabilities. It arises mainly in situations where borrowings are dependent on the market liquidity conditions and the Company may not get the required funds.

Mitigation:

CFHL follows prudent fund mobilization methods by strictly watching asset-liability management tolerance levels. CFHL raises funds from different sources like NHB, Banks, NCDs, CPs and Deposits. This approach has helped CFHL to get funds at lowest possible rates besides enabling robust liquidity management. ALCO committee at RO follows a prudent practice of reviewing its funds regularly. CFHL has remained largely unaffected by the recent liquidity crisis in NBFC and HFC Sector.

Covid – 19 Lockdown:

The Economic Crisis induced by Covid-19 has far reaching consequences for the entire World and the pandemic has taken a terrible toll on human life and the livelihoods of millions the world over. It has affected employment, distribution network, transport system and thereby income levels of a large section of population.

In India, though the mortality rate is lower on account of early lockdown and preventive measures, as compared to other countries, given the widespread and highly contagious nature of the epidemic, a scenario exists where many parts of the country may not return to normalcy even by 2nd or 3rd Quarter of 2020. Lending and Collections are badly affected for all lenders in the market.

Mitigation:

First and foremost, CFHL has demonstrated commitment to the safety of employees and concern for their well-being by strictly following work from home practice during lockdown, running branches and of_ces with minimum staff for essential functions, restricting visits for veri_cations and collections and adhering to all the safety measures that have been advocated.

On the lending front, CFHL is constantly working to adopt the best course of action, including tactical and strategic business moves like identifying regions hard hit by pandemic where lending should be minimized / ceased totally or increased in order to maintain the balance required and reduce the adverse impact in the present circumstances.

On the liquidity front, CFHL has abundant, unutilized limits sanctioned from lenders which will help tide over the issue in case of any need.

On the collections front, CFHL duly complied with the moratorium guidelines issued by RBI. Company is constantly communicating with borrowers through SMS and Emails to know their individual positions and their choice regarding the moratorium option. About 72% of the Borrowers have opted to continue with the payment of EMI without seeking Moratorium. CFHL is constantly adapting its strategy as the situation evolves, to minimize the negative impact of the Pandemic.

Asset Liability Management

The ALM Committee of Executives at RO (ALCO) functions as the operational unit for managing the balance sheet and asset liability mismatches. The ALCO analyses the cash flows in different time buckets based on future likely behaviour of assets and liabilities and off-balance sheet items. ALCO prevents any mismatch between uses and sources of funds. ALCO ensures effective functioning with prudential limits set for liquidity mismatch and interest rate sensitivity, review mechanisms within the set limits by National Housing Bank. All the borrowing decisions of the Company are taken at appropriate levels as per the Board approved Policy on Borrowings.

Additionally, the financial risks of the Company are periodically reviewed by the Risk Management Committee, Audit Committee and the Board of Directors.

Internal Audit

The Internal Audit process ensures Internal Control in operational effectiveness and ef_ciency, reliable financial reporting and compliance with laws, regulations and policies

Various audit reports provided by the Risk Based Internal Audit (RBIA) inspection, NHB, Sponsor Bank as well as the internal and external Auditors of branches are placed before the Audit Committee of the Board for review. The reports of standalone "Application audit of IT systems" by the IT auditors and special audit for evaluating ‘ef_ciency of existing internal control systems are being reviewed from time to time by Audit Committee. The Audit Committee reviews the operation and performance of the audit department.

The Risk pro_le of the Company, KYC/AML compliances, legal compliance report, ALM at quarterly intervals and compliance of fair practice code, customer complaints at half yearly intervals as per the regulatory guidelines are scrutinized and reviewed by the Board of Directors. The critical analysis of the various policies of the Company is done by the Risk Management Committee prior to review and approval of the Board.

Asset Quality

Asset Quality is one of the most critical areas in determining the overall financial health of an organisation.

At CFHL, the management spends signi_cant time, energy and resources in administering its Assets especially the Loan Assets. CFHL is most diligent and focused when reviewing a loan portfolio

CFHL has demonstrated commitment to the safety of employees and concern for their well-being by strictly following work from home practice during lockdown.

in respect of borrower default under contractual agreements of payments. The factors of default are reviewed within the context of any local and regional conditions that might impact the Company performance. The adequacy of loan appraisal standards, soundness of credit policies and practices, risk identi_cation practices, reasons resulting in NPAs, existence of asset concentration, timely identi_cation and collections of delinquent assets, adequacy of internal controls and MIS, the nature of credit documentation are all meticulously checked at different levels and appropriate timely actions are initiated.

The Company has a robust recovery mechanism to contain NPAs, supported by legislations such as SARFAESI Act. Also, recovery campaigns and setting up special recovery hubs in metros, manned by dedicated staff exclusively handling recovery of SMAs and NPAs, have helped the Company in controlling default accounts.

As on March 31, 2020, the Gross NPA Stood at H 157 Crore (0.76%) as against H 113.51 Crore (0.62%) during the previous year.

Financial Performance

(Figures in H crores)

FY 2019-20 FY 2018-19 Change
Revenue 2030.45 1731.35 17.28%
EBITDA 1871.97 1641.74 14.02%
EBIT 1862.50 1638.63 13.66%
PAT 376.12 296.74 26.75%
EPS (in H) 28.25 22.29 26.74%

Financial Ratios

(Figures in H crores)

Ratio FY 2019-20 FY 2018-19 Change
Interest Coverage Ratio 1.39 1.40 -0.01
Debt Equity Ratio 8.72 9.37 -0.65
Operating Prot Margin (%) 28.20 27.18 1.32
Net Prot Margin 18.44 17.14 1.30

Human Capital

CFHLs management, employees and workers are an integral part of the Companys workforce and their combined experience and competence enhances the Companys performance. Its human resource policy lays immense emphasis on continuous learning and it is progressively geared to meet the aspirations of employees. To enhance ef_ciency, competence and motivation, the Company organized several training programmes. It not only helped in effective retention of employees, it also improved loyalty towards the Company. To attract and retain the best available talent, the Company is committed to provide equal employment opportunities and the best working conditions. The Company recruits people with the right skill sets and attitude, a pre-requisite in a customer-centric industry. As of March 31, 2020, the total employee strength of the company stood at 838.

IT and Security

The operations of all the branches and the Registered Of_ce are linked through a core-banking platform (Integrated Business Suite) under the Application Service Provider (ASP) Model.

The Company is in the process of completing the implementation of the MPLS links in all branches for a higher bandwidth and dedicated uptime.

The Company has a good set of IT professionals hired from reputed institutions / _rms to increase the operation ef_ciency in the Information Technology area.

Segment-wise Reporting

Segment has been identi_ed in line with the Accounting Standard on segment reporting, considering the organization structure as well as the differential risk and returns of these segments. The Company is exclusively engaged in the Housing Finance business and revenues are mainly derived from this activity.

Related Party Transactions

CFHL maintains an arms length relationship with related parties. The Companys detailed policy on related party transactions is uploaded in the Companys website for the information of all the stakeholders. The related party transactions with details are furnished in the Note forming part of the accounts. All related party transactions are approved by the Audit Committee or Board or members at a general meeting, as applicable.

Corporate Social Responsibility

Can Fin continued to discharge its CSR enthusiastically and various measures were undertaken primarily focused on education, health and other social welfare measures. An amount of H 2 crore was spent for providing patient care, medical equipment and facilities such as C-arm image Intensi_er, medical van with racks, Ventilator, Patient Transport vehicle and eye testing equipment. The company came forward to empower the underprivileged children of the society through the powerful medium of education by providing desks, benches, chairs, tables, lights, fans, notebooks and other required accessories in schools, water puri_ers for safe and clean drinking water contributing an amount of H 5.60 cr towards this initiative.

The Novel Corona Virus (COVID -19) Pandemic has had a devastating effect on the human population and has spread rapidly across the country posing a serious health threat. It has also affected the economic condition of people due to the lockdown and temporary shut-down of of_ces, industries and all activities.

For the relief and rehabilitation of the regions, villages and the families that have been adversely and severely affected, Can Fin has contributed an amount of H 1.50 crore by way of contribution to PM-CARES and H 1 crore to the Karnataka State Disaster Management Fund.

During the year under review, a total of H 10 crores has been spent towards CSR activities undertaken by the company and H 3 crores has been sanctioned and will be disbursed during the next Financial Year.

Cautionary Statement

The statements made in this report describing the companys objectives, estimations, expectations or projections, outlooks constitute forward looking statements within the meaning of applicable securities, laws and regulations. Actual results may differ from such expectations, projections, among others whether express or implied. The statements are based on certain assumptions and future events over which the company has no direct control. The company assumes no responsibility to publicly amend, modify and revise any of the statements based on any subsequent developments, information or events.