DIRECTORS' REPORT Your Directors have pleasure in presenting their Thirty Seventh Annual Report and the Audited Statements of Accounts of the Company for the financial year ended March 31, 2016. DIVIDEND Your Directors have maintained total dividend of Rs. 10/- per equity share i.e. 100% for the financial year ended March 31, 2016 consisting of an interim dividend of Rs. 4/- per equity share i.e. 40% declared at their meeting held on October 29, 2015 and a final dividend of Rs. 6/- per equity share i.e. 60% recommended at their meeting held on April 29, 2016. The interim dividend was paid on November 17, 2015. TRANSFER TO RESERVES The amounts proposed to be transferred to General Reserve, Statutory Reserve and Debenture Redemption Reserve are mentioned in the Financial Highlights under the heading 'Appropriations'. CAPITAL ADEQUACY RATIO Your Company's total Capital Adequacy Ratio (CAR), as of March 31, 2016, stood at 17.56% of the aggregate risk weighted assets on balance sheet and risk adjusted value of the off-balance sheet items, which is well above the regulatory minimum of 15%. CREDIT RATING On June 30, 2015, CRISIL has upgraded Company's rating to CRISIL AA+/ Stable from 'CRISIL AA/Positive' in respect of the long-term debt instruments and bank facilities. In respect of Company's fixed deposits programme CRISIL has upgraded rating to 'CRISIL FAAA/Stable' from 'CRISIL FAA+/Positive'. On March 16, 2016, the Company obtained from Standard & Poor's Rating "BB+" long-term and "B" short-term issuer credit ratings. The outlook on the long-term rating is Stable. On March 17, 2016, the following ratings were obtained by the Company from Fitch: • Long- Term Issuer Default Rating published at "BB+"; Outlook Stable • Short- Term Issuer Default Rating published at "B". OPERATIONS & COMPANY'S PERFORMANCE For the financial year ended March 31, 2016, your Company earned Profit Before Tax of Rs. 178,143.12 lacs as against Rs. 184,238.81 lacs in the previous financial year and the Profit After Tax of Rs. 117,819.76 lacs as against Rs. 123,780.98 lacs in the previous financial year. The total income for the year under consideration was Rs. 1,024,526.14 lacs and total expenditure was Rs. 846,383.02 lacs. The new NPAs norms stipulated by Reserve Bank of India which required higher provisioning in respect of Non-Performing loan assets had impacted the profitability of the Company during the current year. The net interest margin had improved on account of declining interest rates in the market, innovative resource planning, efficient fund management and better negotiation with banks, financial institutions, etc. As on March 31, 2016, the outstanding hypothecation loans were Rs. 6,015,921.29 lacs. The total Assets Under Management had increased from Rs. 5,910,827.84 lacs to Rs. 7,276,060.55 lacs. During 2015-16 the company securitised its assets worth Rs. 899,175.10 lacs (accounting for 12.36% of the total assets under management as on March 31, 2016) as against Rs. 448,142.52 lacs during 2014-15. With securitisation, the company ensures better borrowing profile, leading to lower interest liability owing to its lending to priority sector as per RBI. The outstanding securitised assets portfolio stood at Rs. 1,086,628.40 lacs as on March 31, 2016. The Company continued its focus on financing of pre-owned commercial vehicles. Our relationship based business model enabled us to maintain the leadership position in the pre-owned commercial vehicles financing segment. For further penetration into rural market, the Company opened 27 new Rural Centres and 112 new Branch Offices. With this the total number of Rural Centres has now increased to 803 and the total number of Branch offices across India has now increased to 853. SCHEME OF AMALGAMATION On March 31, 2016, the Hon'ble Madras High Court has sanctioned the Scheme of Amalgamation of Shriram Equipment Finance Company Limited (SEFCL) with the Company under Section 391 to 394 of the Companies Act, 1956 ('the Scheme'). Accordingly, SEFCL has amalgamated with the Company from April 01, 2015 (the Appointed Date'). As such, the Standalone financial statements of the Company also include the financials of the SEFCL. The Certified True Copy of the Amalgamation Order of the Hon'ble Madras High Court was filed with Registrar of Companies, Tamil Nadu, on April 19, 2016 (the 'Effective Date'). The Amalgamation of SEFCL with the Company would result in the benefits such as integration of operations, simplification of the group structure, elimination of multiple entities within the group, optimal utilisation of resources, better administration and cost reduction. SHARE CAPITAL Pursuant to the Amalgamation of SEFCL with the Company as mentioned above, the Authorised Capital of the Company has increased by the Authorised Capital of SEFCL (For details refer note 3 to the financial statements). There was no change in the paid up Equity Share Capital in the Financial Year 2015-16. FIXED DEPOSITS As on March 31, 2016, there were 6,871 fixed deposits aggregating to Rs. 5,413.21 lacs that have matured but remained unclaimed. There were no deposits, which were claimed but not paid by the Company. The unclaimed deposits have since reduced to 5,608 deposits amounting to Rs. 4,272.63 lacs. Appropriate steps are being taken continuously to obtain the depositors' instructions so as to ensure renewal/ repayment of the matured deposits in time. DIRECTORS AND KEY MANAGERIAL PERSONNEL Mr. D. V. Ravi was appointed as an Additional Director of the Company by the Board of Directors in its meeting held on June 18, 2015. The shareholders in its 36th Annual General Meeting held on July 31, 2015 passed necessary resolution for his appointment as a Director in the category of Non Executive Non-Independent Director. Mr. Umesh Revankar resigned as CEO & Managing Director of the Company from the close of business hours on April 29, 2016. He continues as Non-Executive /Non-Independent Director of the Company till the ensuing Annual General Meeting and is eligible for re-appointment as a Director. The Board of Directors have placed on record its appreciation of the services rendered by Mr. Umesh Revankar as CEO & Managing Director of the Company. On recommendation of Nomination Remuneration and Compensation Committee, the Board of Directors in its meeting held on April 29, 2016 has appointed Mr. Jasmit Singh Gujral as an Additional Director and also as Managing Director & CEO of the Company with effect from April 30, 2016. The profile of Mr. Jasmit Singh Gujral has been given in the explanatory statement of the Notice of the ensuing Annual General Meeting wherein the appropriate resolutions for his appointment as an Executive Non-Independent Director and also as Managing Director & CEO of the Company are proposed for approval of shareholders. The Board of Directors recommend for passing of the resolution for appointment/reappointment of the above mentioned Directors. None of the Key Managerial Personnel has been appointed or resigned during the year under review. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the provisions of Section 134(3)(c) of the Companies Act, 2013, the Directors confirm that, to the best of their knowledge and belief: a) In the preparation of the Annual Accounts, the applicable Accounting Standards have been followed along with proper explanation relating to material departures; b) That such accounting policies as mentioned in note 2.1 to the financial statements have been selected and applied consistently, and judgments and estimates have been made 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, 2016 and of the profit of the Company for the year ended on that date; c) That proper and sufficient care has been taken 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; d) The Annual Accounts have been prepared on a going concern basis. e) The Company had followed the internal financial controls laid down by the directors and that such internal financial controls are adequate and were operating effectively. 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. RBI GUIDELINES The Company continues to comply with all the requirements prescribed by the Reserve Bank of India, from time to time. BUSINESS RESPONSIBILITY REPORT Pursuant to Regulation 34(2)(f) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Regulation) Business Responsibility Report is annexed and forms part of the Annual Report. CORPORATE SOCIAL RESPONSIBILITY (CSR) The object of CSR Policy of the Company is to continue to contribute towards social welfare projects for benefits of 'Aam Aadmi' focusing on providing education, vocational training, promoting health care facilities to economically weaker and underprivileged section of the Society and to do such other activities as may be permissible under Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014. The Company took various initiatives towards furtherance of the above objectives by focusing on CSR projects/programs/activities in the sectors such as education, training and skill development, preventive health care, etc. The CSR Report for the Financial Year 2015-16 is annexed to this report as Annexure-I. The CSR Policy is uploaded on the Company's website at the web link: <http://stfc.in/pdf/> corporate-social-responsibility-policy.pdf DISCLOSURES AS PER THE SECTION 134 OF THE COMPANIES ACT, 2013 READ WITH RULE 8 OF THE COMPANIES (ACCOUNTS) RULES, 2014 Extract of Annual Return The extract of the annual return in the Form MGT 9 is annexed to this report as Annexure-II. Declaration by Independent Directors The Board has received the declaration from all the Independent Directors as per the Section 149(7) of the Companies Act, 2013 and the Board is satisfied that all the Independent Directors meet the criterion of independence as mentioned in Section 149(6) of the Companies Act, 2013. Company's Policy on Directors appointment and Remuneration The Nomination Remuneration and Compensation Committee has put in a place the policy on board diversity for appointment of directors taking into consideration qualification and wide experience of the directors in the fields of banking, finance, regulatory, administration, legal, commercial vehicle segment apart from compliance of legal requirements of the Company. The Company has laid down remuneration criteria for directors, key managerial personnel and other employees in the Nomination Remuneration and Compensation Committee Charter/ Policy. The Policy on Board Diversity and Nomination Remuneration and Compensation Committee Charter/Policy are annexed to this report as Annexure III and IV. Number of Meetings of the Board During the year six Board Meetings were held. The details of the Board and various Committee meetings are given in the Corporate Governance Report. Board Evaluation Pursuant to the provisions of the Companies Act, 2013 and Regulation 17 of SEBI Regulation, the Board has carried out an annual performance evaluation of its own performance, the directors individually as well as the evaluation of the working of its various Committees. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report. Conservation of Energy, Technical Absorption and Foreign Exchange Earnings and Outgo The information pursuant to Section 134(3)(m) of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014 is as follows: a. The Company has no activity involving conservation of energy or technology absorption. b. The Company does not have any Foreign Exchange Earnings. c. Outgo under Foreign Exchange - Rs. 61.72 lacs. Particulars of loans, guarantee or investments Pursuant to Section 186(11)(a) of the Companies Act, 2013 (the 'Act') read with Rule 11(2) of the Companies (Meetings of Board and its Powers) Rules, 2014, the loan made, guarantee given or security provided in the ordinary course of business by a Non- Banking Financial Company (NBFC) registered with Reserve Bank of India are exempt from the applicability of provisions of Section 186 of the Act. As such the particulars of loans and guarantee have not been disclosed in this Report. During the year under review the Company has invested surplus funds in various securities in the ordinary course of business. For details of the Current Investments and Non-Current Investments of the Company refer to note 14 & 10 respectively of the financial statements. Particulars of Contracts or Arrangements with Related Parties The Related Party Transactions (RPTs) were entered in ordinary course of business on an arm's length basis and were in compliance with the provisions of the Companies Act, 2013 and the SEBI Regulation. The statement of RPTs is placed before the Audit Committee and the Board on a quarterly basis. Omnibus approval was obtained for the transactions of repetitive nature. The Policy on Materiality of Related Party Transactions and dealing with Related Party Transactions as approved by the Board is uploaded on the Company's website at the web link: <http://stfc.in/pdf/Policy-on-Materiality-of-Related->Party-Transactions-and-dealing-with-Related-Party-Transactions-V1.pdf There are no materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons which may have a potential conflict with the interest of the Company at large. Accordingly, particulars of contracts or arrangements with related parties referred to in Section 188(1) of the Companies Act, 2013 along with the justification for entering into such contract or arrangement in Form AOC-2 does not form part of the report. None of the Directors has any pecuniary relationships or transactions vis-a-vis the Company save and except the payment of sitting fees and commission to Independent Directors. For details of the transactions with Related Party refer to the note 27 to the financial statements. Risk Management Policy Risk Management Policy identifies, communicate and manage material risks across the organization. The policy also ensures that responsibilities have been appropriately delegated for risk management. Key Risk and mitigation measures are provided in the Management Discussion and Analysis annexed to the Annual Report. Whistle Blower Policy/ Vigil Mechanism The Company has framed a Whistle Blower Policy/Vigil Mechanism providing a mechanism under which an employee/director of the Company may report violation of personnel policies of the Company, unethical behaviour, suspected or actual fraud, violation of code of conduct. The Vigil Mechanism ensures standards of professionalism, honesty, integrity and ethical behavior. The Whistle Blower Policy/Vigil Mechanism is uploaded on the Company's website: www.stfc.in <http://www.stfc.in>. Financial summary/highlights The details are spread over in the Annual Report as well as are provided in the beginning of this report. Subsidiaries, joint ventures or associate companies As stated earlier in the Report, Shriram Equipment Finance Company Limited ('SEFCL') was amalgamated with the Company pursuant to the Scheme of Amalgamation sanctioned by the Hon'ble Madras High Court on March 31, 2016. Consequently, SEFCL has ceased to be the subsidiary of the Company. Internal Financial Control System The Company's well defined organisational structure, documented policy guidelines, defined authority matrix and internal financial controls ensure efficiency of operations, protection of resources and compliance with the applicable laws and regulations. Moreover, the Company continuously upgrades its systems and undertakes review of policies. The internal financial control is supplemented by extensive internal audits, regular reviews by management and standard policies and guidelines to ensure reliability of financial and all other records to prepare financial statements and other data. The Audit Committee of the Board reviews internal audit reports given along with management comments. The Audit Committee also monitors the implemented suggestions. Composition of Audit Committee The Audit Committee comprises of four directors namely, Mr. S. Sridhar - Chairman, Mrs. Kishori Udeshi, Mr. S. M. Bafna and Mr. Puneet Bhatia. Composition of CSR Committee The CSR Committee comprises of four directors namely, Mr. Umesh Revankar - Chairman, Mrs. Kishori Udeshi, Mr. Amitabh Chaudhry and Mr. Puneet Bhatia. Performance and Financial Position of the Subsidiary Shriram Automall India Limited (SAIL), Wholly Owned subsidiary of the Company through its 57 Automalls located across the Country provides fee-based facilitation services for the sale of pre-owned commercial and passenger vehicles, agricultural and construction equipments, dealer's stock of pre-owned two wheelers, etc. repossessed by banks and financing companies. For the year ended March 31, 2016, SAIL's total income from operations was Rs. 7,452.95 lacs as against Rs. 6,978.51 lacs in the previous year 2014-15 and the Net Profit of Rs. 542.07 lacs as against net profit of Rs. 788.59 lacs in the previous year 2014-15. 7 New Automalls were opened during 2015-16. The annual reports and the annual accounts of the SAIL and the related detailed information shall be made available to shareholders of the Company seeking such information. The annual accounts of SAIL shall also be kept for inspection by shareholders at the Registered Office of the Company and of SAIL. The annual accounts of SAIL shall be available on the website of the Company viz. www.stfc.in <http://www.stfc.in>. The Company shall furnish hard copy of details of accounts of SAIL to any shareholder on demand. Others • There were no material changes and commitments, affecting the financial position of the Company which has occurred between the end of the financial year of the Company and the date of the Directors' report. • 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. • There was no change in the nature of business of the Company. The company continues to be an Asset Finance Company. • During the year under review, there were no cases filed under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 • Disclosure regarding details relating to Deposits covered under Chapter V of the Act is not applicable since our company is a Non-Banking Financial Company regulated by Reserve Bank of India. The Company accepts deposits as per Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. CONSOLIDATED FINANCIAL STATEMENTS Pursuant to Section 129 read with Rule 5 to the Companies (Accounts) Rules, 2014, Statement containing salient features of the financial statement of subsidiary and a statement on consolidated financial position of the Company with that of the subsidiary is attached to the Annual Report. The consolidated financial statements attached to this Annual Report are prepared in compliance with the applicable Accounting Standards and SEBI Regulation. PARTICULARS OF EMPLOYEES The Company has not employed any individual whose remuneration falls within the purview of the limits prescribed under the provisions of Section 197 of the Companies Act, 2013 read with Rule 5 (2) of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The details pertaining to Remuneration as required under Section 197 of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed to this report as Annexure-V. AUDITORS M/s. S. R. Batliboi & Co. LLP, Chartered Accountants, Mumbai (ICAI Firm Registration No. 301003E / E300005) and M/s. G. D. Apte & Co., Chartered Accountants, Mumbai, (ICAI Firm Registration No. 100515W), Auditors of the Company retire at the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. Certificates have been received from them to the effect that their re-appointment as Auditors of the Company, if made, would be within the limits prescribed under Section 139 and 141 of the Companies Act, 2013. They have also confirmed that they hold a valid peer review Certificate as prescribed under SEBI Regulation. Members are requested to consider their re-appointment. The Auditors' Report to the Shareholders for the year under review does not contain any qualification. SECRETARIAL AUDIT The Board had appointed Mr. P. Sriram, Practicing Company Secretary (Certificate of Practice No.3310) (Membership No. FCS 4862) to carry out Secretarial Audit under the provisions of Section 204 of the Companies Act, 2013 for the financial year 2015-16. The Secretarial Audit Report is annexed to this report as Annexure-VI. The report does not contain any qualification. CORPORATE GOVERNANCE Pursuant to Schedule V of the SEBI Regulation the following Reports/Certificates form part of the Annual Report: • the Report on Corporate Governance; • the Certificate duly signed by the CEO & Managing Director and Chief Financial Officer on the Financial Statements of the Company for the year ended March 31, 2016 as submitted to the Board of Directors at their meeting held on April 29, 2016 ; • the declaration by the CEO & Managing Director regarding compliance by the Board members and senior management personnel with the Company's Code of Conduct ; and • the Management Discussion & Analysis Report The Auditors' Certificate on Corporate Governance is annexed to this report as Annexure-VII. ACKNOWLEDGEMENT The Board of Directors would like to place on record their gratitude for the guidance and cooperation extended by Reserve Bank of India and the other regulatory authorities. The Board takes this opportunity to express their sincere appreciation for the excellent patronage received from the Banks and Financial Institutions and for the continued enthusiasm, total commitment, dedicated efforts of the executives and employees of the Company at all levels. We are also deeply grateful for the continued confidence and faith reposed on us by the Shareholders, Depositors, Debenture holders and Debt holders. For and on behalf of the Board of Directors S. Lakshminarayanan Chairman (DIN : 02808698) DATE : April 29, 2016 PLACE : Mumbai |