BOARD'S REPORT Dear Members, Your Directors are pleased to present the Nineteenth Annual Report together with the Company's audited financial statements of the company for the financial year ended March 31, 2015. 1. RESULTS OF OUR OPERATIONS AND STATE OF AFFAIRS During FY 2014-15, your Company fulfilled all its obligations as a Primary Dealer in both primary and secondary market. With regard to Treasury Bills commitment, the Company exceeded the stipulated success ratio of 40 per cent, achieving 42.92 per cent and 49.60 per cent in H1 and H2 respectively. In G-sec category, Company fulfilled the underwriting commitments, thereby supporting the government borrowing program. Company delivered good performance during the year by astutely deriving advantage from volatile G-sec market condition and judicious deployment of funds in high yielding assets. The total Profit Before Tax for FY 2014-15 stands at Rs. 13389.26 lacs as against Rs. 9070.32 lacs in FY 2013-14. During the year, the net revenue from operations of your Company increased by 45.07 per cent, from Rs. 9990.01 lacs to Rs. 14492.48 lacs. Profit After Tax stood at Rs. 8961.41 lacs vis-a-vis Rs. 6138.19 lacs in the previous fiscal, registering a growth of 45.99 per cent. The profitability was boosted by trading performance and judiciously taking advantage of arbitrage opportunity by the Company. During FY 2014-15, Company posted trading income of Rs. 7585.27 lacs as against Rs. 3140.78 lacs in last fiscal i.e. registered growth of 141.51 per cent. The Government Securities yields rallied sharply due to sharp fall in crude prices, moderation in inflation, ultra-accommodative monetary easing in the euro zone and Japan, receding fears of imminent normalization of US monetary policy and strong FN demand for Government Securities. Rate cuts by Reserve Bank of India (RBI) in two tranches by 25 basis points each also aided the government bonds market and the yields fell further. Amid these factors the yield on 10 year benchmark paper closed the year at 7.74 per cent as against 8.80 per cent as on March 31, 2014. No material changes and commitments have occurred after the close of the year till the date of this report, which affect the financial position of the Company. Capital Adequacy Capital adequacy ratio as on March 31, 2015 stood at 65.07 per cent as against the RBI stipulation of 15 per cent. Dividend Your Board has recommended a final dividend of Rs. 1.50 (i.e. 15 per cent) per equity share (last year Rs. 0.90 per equity share) for the financial year ended March 31, 2015, subject to approval in the ensuing Annual General Meeting. The total outflow on account of said dividend shall be Rs. 3253 lacs (including Dividend Distribution Tax of Rs. 552.85 lacs). Transfer to Reserves Your Company proposes to transfer Rs. 1792.28 lacs in Statutory Reserve as required under the provisions of Section 45-IC of the Reserve Bank of India Act, 1934. Rs. 1072.52 lacs is proposed to be transferred in Capital Reserve in terms of RBI guidelines for Primary Dealers. Further, in terms of the first proviso to Section 123(1) of the Companies Act, 2013, the Company proposes not to transfer any sum in General Reserve. 2. CORPORATE GOVERNANCE Corporate Governance for your Company means achieving high level of accountability, efficiency, responsibility and fairness in all areas of operations. Our workforce is committed towards the protection of the interest of the stakeholders including shareholders, creditors, investors, customers, employees, etc. Our policies consistently undergo improvements keeping in mind our goal i.e. maximization of value of all the stakeholders. We comply with the SEBI and RBI guidelines on corporate governance. We have documented our internal code on Corporate Governance in compliance of SEBI and RBI guidelines. The Corporate Governance practices followed by the Company are given in the Annual Report. A certificate from M/s Kapoor Tandon & Co. (Firm Reg. No. 000952C), Statutory Auditor of the Company regarding compliance of conditions of Corporate Governance stipulated by Stock Exchanges is enclosed with the 'Report on Corporate Governance' forming part of the Board's Report. Number of meetings of the Board The Board met seven times during the financial year 2014-15 to review strategic, operational, technological and financial matters besides laying down policies and procedures for operational management of the Company. The details of such meetings are given in the 'Report on Corporate Governance' that forms part of this Annual Report. Directors and Key Managerial Personnel During the year 2014-15, the members in their Annual General Meeting held on August 30, 2014 approved the appointment of Dr. O. P. Chawla (DIN: 00026712), Dr. Kamal Gupta (DIN: 00038490), Sh. S. K. Soni (DIN: 00046856) and Sh. P. P. Pareek (DIN: 00615296) as Independent Directors for a term of five years with effect from August 30, 2014. In the same Annual General Meeting, members also approved the appointment of Smt. Sunita Gupta (DIN: 06902258) as Whole-time Director with designation 'Executive Director and CFO' effective from June 26, 2014 to August 31, 2017. The members also approved reappointment of Sh. S. K. Dubey (DIN: 01770805) as Managing Director for a period from February 1,2014 to June 30, 2015. Further, on the recommendation of Nomination and Remuneration Committee, the Board in its meeting held on April 29, 2015 re-appointed Sh. S. K. Dubey as Managing Director for a period effective from July 1, 2015 to June 30, 2016, subject to the shareholders approval in the ensuing Annual General Meeting. During the year, Sh. K. R. Kamath (DIN: 01715073), Non-Executive Director and Chairman, upon completion of his term as Chairman and Managing Director of Punjab National Bank, resigned from the Directorship and Chairmanship of the Company with effect from October 29, 2014. The Board appreciate and thank him for his vision, leadership and guidance, enabling your Company to reach another standard of excellence. Sh. P. K. Mohapatra (DIN: 02660553), who was appointed as a Non-Executive Director in the Annual General Meeting held on August 30, 2014, also demitted office effective from March 24, 2015. The Board places on record its appreciation for the services rendered by him during his tenure in the Company. During the year, on recommendation of Nomination and Remuneration Committee, the Board has appointed - a. Sh. K. V. Brahmaji Rao (DIN: 06861202), Executive Director - Punjab National Bank as Additional (Non-Executive) Directorw.e.f. November 1, 2014. b. Sh. Gauri Shankar (DIN: 06764026), Managing Director & Chief Executive Officer - Punjab National Bank as Additional (Non-Executive) Directorw.e.f. March 25, 2015. Further, in accordance with the provisions of the Companies Act, 2013 and the Articles of Association of the Company, Smt. Sunita Gupta (DIN: 06902258) shall retire by rotation in the ensuing Annual General Meeting and is eligible for reappointment. Performance Evaluation The Company has devised a policy for performance evaluation of Board of its own performance, Independent Directors, Non-Independent/Executive Directors and Board level Committees etc. as required under the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement. The evaluation of all the Directors, the Board as a whole and its Committees was conducted based on the criteria and framework adopted by the Board. Copy of said policy, inter-alia, containing the process and criteria for evaluation is available at Company's website at the link <http://pnbgilts.com/data/governence/1433237578.pdf>. Familiarization programme The details of programme for familiarization of Independent Directors with the company, their roles, rights, responsibilities in the company, nature of industry in which the company operates, business model of the company and related matters are placed at Company's website at the link <http://pnbgilts.com/data/governence/1433236985>. pdf. Quarterly updates on relevant statutory changes are also circulated to the Directors. Policy on Directors' appointment and Remuneration etc. The policies of the Company on Directors' appointment and Remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under Sub-section (3) of Section 178 of the Companies Act, 2013 is appended as Annexure A to the Board's Report. Declaration by Independent Directors The Company has received declaration pursuant to Section 149(7) of the Companies Act, 2013 from each Independent Director confirming therein the criteria of Independence as prescribed both under the Companies Act, 2013 and Clause 49 of the Listing Agreement. 3. OTHER DISCLOSURES – Audit Committee All the recommendations made by the Audit Committee during the year were accepted by the Board. Corporate Social Responsibility (CSR) Committee The CSR Committee was constituted by the Board before enactment of the Companies Act, 2013. After enactment, the Board in its first meeting held on April 26, 2014, reconstituted the CSR Committee. The CSR policy of the Company, duly recommended by the CSR Committee and approved by the Board, is available at our website at the link <http://pnbgilts.com/data/governence/1433236913.pdf>. The CSR activity of the Company is carried out as per the instructions of the Committee and Board. During the year, the Company has spent 2 per cent of its average net profits of the three immediately preceding financial years on CSR activity. The annual report on our CSR forthe financial year 2014-15 in the prescribed format is presented at Annexure B to the Board's Report. Other details of above said and other Committees of the Board are given in the 'Report on Corporate Governance' forming part of the Board's Report. Whistle Blower Policy (including Vigil Mechanism) Your Company believes in conducting its affairs in a fair and transparent manner by adopting highest standards of professionalism, honesty, integrity and ethical behaviour. Your Company is committed to develop a culture where it is safe for all employees to raise concerns about any wrongful conduct. The Board of Directors has approved a Whistle Blower Policy (including Vigil Mechanism), which provides a framework to promote a responsible and secure whistle blowing. It protects employees wishing to raise a concern about serious irregularities within the Company. The Audit Committee reviews the functioning of this mechanism. No employee / director has been denied access to the Audit Committee. The said policy may be accessed on the Company's website at the link <http://pnbgilts.com/data/governence/1409222609.pdf> Contracts and Arrangements with Related Parties All the contracts/ arrangements/transactions entered by the company are in ordinary course of business and generally at arm's length. Further during the year, the company had not entered into any contract/arrangement/ transaction with related parties, which could be considered material in accordance with the Company's Policy/ Standard Operating Procedures (SOP) on Related Party Transactions. The said Policy/SOP can be accessed at the Company's website at the link <http://pnbgilts.com/data/shareholder/1417690793.pdf> Necessary disclosure in prescribed form AOC-2 is annexed at Annexure C. Subsidiaries The Company, being a RBI regulated Primary Dealer, is prohibited to form any subsidiary. As such, the Company has not formulated any policy for determining 'material' subsidiaries under Clause 49 of Listing Agreement. Further, since the Company is not having any subsidiary or associate or joint venture, it is not required to consolidate the financial statements in terms of Section 129 of the Companies Act, 2013 read with Rule 5 of the Companies (Accounts) Rules, 2014. However, the financial statements of the Company for FY 2014-15 had already been considered by its parent bank i.e. Punjab National Bankforconsolidation. Directors' Responsibility Statement Pursuant to the requirements of Section 134(3)(c) of the Companies Act, 2013, your Directors confirm that: (a) in the preparation of the annual accounts for the year ended March 31, 2015, the applicable accounting standards read with the requirements set out under the Schedule III to Companies Act, 2013, have been followed and there are no material departures from the same; (b) the Directors had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2015 and of the profit and loss of the company for the year ended on that date; (c) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (d) the Directors had prepared the annual accounts on a going concern basis; (e) the Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and (f) the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Human Resource Management Your Company treats its human resources as one of its most important assets. To ensure good human resource management in the Company, the Company focuses on all the aspects of employee lifecycle. During their tenure in the Company, employees are motivated through various skill development and volunteering programmes. Recreational programmes are also conducted on regular basis so as to create stress-free environment. All the while, the Company also creates effective dialogues through various communication channels like face to face interactions so as to ensure that feedback reach the relevant teams. In house meetings and training sessions are also arranged to engage and develop the employees and to gather ideas around innovation. The information required to be disclosed under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2015 be treated as NIL as none of the employees of the Company draws remuneration in excess of Rs. 5 lacs p.m. No employee is related to any Director of the Company. The information required to be disclosed under Section 197(12) and Rule 5 (1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2015 is provided at Annexure D. During the year 2014-15, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Particulars of Loans given, investment made, guarantees given and securities provided The information required to be disclosed under Section 134(3)(g) of the Companies Act, 2013 may be treated as 'Nil', as the Company is exempted under Section 186(11) of the Companies Act, 2013. Extract of the Annual Return Extract of Annual Return of the Company is annexed herewith as Annexure E to this Report. Deposits During the year ended March 31, 2015, the Company has not accepted any deposits from the public within the meaning of the provisions of the Non- Banking Financial Companies (Reserve Bank) Directions, 1977 and RBI's notification no. DFC.118DG/(SPT)-98dated January31, 1998. Risk Management In terms of RBI guidelines for NBFCs, a Risk Management Committee, constituted at management level, has been entrusted with the responsibility by the Board in laying down procedures for risk assessment and minimization. The Committee also reviews these procedures periodically to ensure that executive management is implementing and controlling the risks through means of a properly defined risk framework. The Audit Committee, on periodic basis, oversees all the risks that a company faces such as strategic, financial, market, liquidity, security, property, IT, legal, regulatory and other identified risks alongwith the implementation of risk management policy. There is an adequate risk management infrastructure in place capable of addressing the possible risks. Risk Management Policy is reviewed annually by the Audit Committee and on the basis of the Committee's recommendation, the Board approves the same. Significant and material orders There are no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Company's operations in future. Issue of Shares There was no issue of shares during the year neither with differential rights as to dividend, voting or otherwise nor to employees of the company. Management Discussion and Analysis Management Discussion and Analysis comprising an overview of the financial results, operations/performance and future aspects form part of this Annual Report. 4. AUDITORS, INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY Statutory Auditor The Comptroller and Auditor General of India had appointed M/s Kapoor Tandon & Co., Chartered Accountants (Firm Reg. No. 000952C) as the Statutory Auditor of the Company for the financial year ended March 31, 2015. The report of the auditor is self-explanatory and do not call for any further comments. The Auditors' Report does not contain any qualification, reservation or adverse remark. Secretarial Auditor The Board had appointed M/s Pranav Kumar & Associates, Company Secretaries, to conduct the Secretarial Audit for the financial year 2014-15. The Secretarial Audit Report for the financial year ended March 31, 2015 is annexed as Annexure F to this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. Internal control systems and their adequacy The Company considers the internal control systems to be a very significant part of its Corporate Governance practices. Your Board has adopted the policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Company's policies, the safeguarding of its assets, prevention and detection of frauds etc. As a part of this control system, your Board appoints Internal Auditor as well. For the year 2014-15, the Board appointed M/s Ernst & Young LLP as the Internal Auditor of the Company. The scope of Internal Audit included audit of treasury transactions on a monthly basis and reporting to the Audit Committee of the Board that the company has operated within the limits of various risk parameters laid down by the Board, Reserve Bank of India and other statutory authorities. Besides, the said firm also audited and reviewed the related partytransactions on monthly basis and key business processes, including IT systems of the Company on quarterly basis. All the reports of the Internal Auditors were submitted to the Audit Committee. 5. DETAILS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO a) Part A pertaining to the conservation of energy is not applicable to the Company. With regard to Part B pertaining to technology absorption, the Company has installed the integrated treasury management software and RBI's Negotiated Dealing System with the help of The Institute for Development and Research in Banking Technology (IDRBT) and reputed IT companies. The Company recognizes the growing importance of Information Technology in the emerging business environment. The Company has also implemented Business Continuity Plan (BCP) and Disaster Recovery Plan (DRP) with the help of IDRBT (consultants for implementation of BCP and DRP) to identify and reduce risk exposures and proactively manage any contingencies. b) Foreign Exchange earnings and outgo: The Company has neither used nor earned any foreign exchange during the year under review. Acknowledgements Your Directors thank the Government of India, Reserve Bank of India, Securities and Exchange Board of India, National Stock Exchange of India Ltd., BSE Ltd., Parent Bank, Commercial Banks, Cooperative & Regional Rural Banks, Financial Institutions, PF Trusts, Public Sector Undertakings, Private Sector Corporate Bodies and other valued clients for their whole-hearted support. We acknowledge the sincere and dedicated efforts put in by the employees of the Company at all levels. On behalf of Board of Directors (Gauri Shankar) Chairman DIN:06764026 Date : June 27, 2015 Place: New Delhi |