SKS Microfinance Directors Report, SKS Microfin Reports by Directors

Directors Report	Year End : Mar '12 � Mar 11

The Directors have pleasure in presenting the Ninth Annual Report of your Company together with the audited statement of accounts for the year ended March 31, 2012. The year was momentous for the microfinance industry in India in general and your Company in particular due to the significant regulatory changes. The following are the major developments on the regulatory front: * On May 3, 2011 the Reserve Bank of India (RBI) accepted the recommendations of the Malegam Committee, set up to study issues and concerns in the microfinance sector. Also, the RBI re-affirmed priority sector status for microfinance. * On December 2, 2011, the RBI created a new category of finance companies, the Non-Banking Finance Companies-Micro Finance Institutions (NBFC-MFIs), and released operational guidelines for these firms which will be regulated by the RBI. The guidelines lay considerable emphasis on the financial stability of MFIs and prescribe prudential norms for capital adequacy, asset classification and provisioning for bad assets. Further, ceilings have also been imposed on individual interest rates and realizable margins. Also, certain norms have been stipulated in relation to fair collection practices and transparency in pricing. * On May 22, 2012, the Micro Finance Institutions (Development and Regulation) Bill, 2012 was introduced in Parliament. Your Company has already adopted several aspects of the new regulatory framework and has applied to the RBI for the classification of your Company as an NBFC-MFI. Your Company continues to be one of the largest microfinance institutions (MFIs) in India in terms of the total value of loans outstanding and the number of borrowers, as of March 31, 2012, and the only MFI listed in India. Financial highlights The financial performance for fiscal ended March 31, 2012 is summarized in the following table: (Rs. in Crore) Year ended March 31 2012 2011 Total revenue 472.3 1,269.5 Less: Total expenditure 1,796.1 1,098.6 Profit (Loss) Before Tax (1,323.7) 170.9 Profit (Loss) After Tax (1,360.6) 111.6 Surplus brought forward 309.3 220.0 Amount available for appropriation - 331.6 Appropriation has been made as under: Transfer to Statutory Reserve - 22.3 Surplus carried to Balance Sheet (1,051.3) 309.3 Earnings Per Share (EPS) (188.06) 16.1 Diluted EPS (188.06) 15.2 - Your Company''s total revenue for the year ended March 31, 2012 has recorded a reduction of 62.8 percent from Rs. 1,269.5 crore to Rs. 472.3 crore. - Net Profit After Tax for the year declined from Rs. 111.6 crore to a loss of Rs. 1,360.6 crore in FY12. Operational highlights The following table summarizes the operational performance of your Company for the year ended March 31, 2012: Year ended March 31 2012 2011 Percentage change Number of branches 1,461 2,379 (38.6) Number of members (in Lakhs) 53.5 73.1 (26.8) Number of employees 16,194 22,733 (28.8) Amount disbursed (Rs.in Crore) 2,737 7,831 (65.1) Portfolio outstanding (Rs. in Crore) 1,669 4,111 (59.4) During the year under review, your Company''s member base has decreased by 26.8 percent to 53.5 lakh (5.35 million) as compared to 73.1 lakh (7.31 million) for the previous year, which is primarily due to Andhra Pradesh Microfinance Institutions (Regulation of Money-Lending) Act, 2010 (AP MFI Act). Consequently, loan disbursement decreased by 65.1 percent from Rs. 7,831 crore to Rs. 2,737 crore. Your Company has closed or merged 918 branches as part of its business rationalization policy. Unique strengths Your Company continues to be recognized as one of the largest MFIs in India with unique achievements and strengths. Among these are: * Your Company has repaid more than Rs. 3,800 crore to the banking system since the Andhra Pradesh microfinance situation without even a day''s delay and did not join CDR. * Your Company has healthy cash and bank balances of Rs. 690 crore with a networth of Rs. 435 crore and strong capital adequacy of 35.4 percent (as against the 12 percent stipulated by the Reserve Bank of India) as of March 31, 2012. In addition, the unavailed deferred tax benefit stands at Rs. 460 crore. * Your Company has also brought about a significant reduction in operating costs from Rs. 106 crore in Q4-FY11 to Rs. 81 crore in Q4-FY12 on account of branch consolidation from 2,379 in Q4-FY11 to 1,461 in Q4-FY12. * Your Company has not lost a single Core Management Team member voluntarily since the Andhra Pradesh microfinance situation. * In order to protect members from over-indebtedness, your Company has been playing a leading part in pioneering industry-wide efforts on creating and sharing credit-related information with Credit Bureaus. Between September 2011 and April 2012, your Company obtained Credit Bureau reports for 44 lakh members, while loans have been given to only 26percent of them. * Your Company''s policies and processes along with documentation have been modified to comply with: 1. RBI guidelines of December 2, 2011. 2. RBI Fair Practice Code guidelines of July 2, 2012. 3. Guidelines and codes of industry bodies like Sa-Dhan and MFIN. * Your Company disclosed on December 7, 2011 that it would invest Rs. 15 crore in the next three years in order to align its customer grievance redressal and Customer Protection Practices (CPP) with globally recognized benchmarks. * Your Company announced on December 7, 2011 that it will cap Return on Assets at 3 percent for the core microfinance business. Your Company''s present interest is 24.55 percent as against the Reserve Bank of India prescribed limit of 26 percent. * Mr. Verghese Jacob, a seasoned corporate and social sector expert with three decades of experience, was appointed as your Company''s Ombudsman on January 31, 2012. * Your Company commissioned EDA Rural Systems, a reputed development sector consultancy, to develop a training programme encompassing the seven principles (avoidance of over-indebtedness, transparency, responsible pricing, appropriate collection practices, ethical staff behavior, privacy of client data and grievance redressal mechanism) of CPP and also certify several staff members after imparting Train-The-Trainer coaching to them. On account of such distinctions, your Company has been appreciated by key stakeholders including banks and financial institutions. Your Company completed 23 transactions with leading banks and financial entities and obtained sanction for incremental debt of Rs. 1,360 crore in Q4-FY12. During the fiscal, your Company also accomplished the largest rated pool assignment transaction of Rs. 354 crore in the Indian microfinance history. Andhra Pradesh microfinance situation The achievements should be viewed in the backdrop of the sensitive Andhra Pradesh situation post the promulgation of the Andhra Pradesh Micro Finance Institutions (Regulation of Money-Lending) Ordinance, 2010. Subsequently, on January 1, 2011, the Government of Andhra Pradesh introduced the AP MFI Act to replace the Ap MFI Ordinance. Prior to the promulgation of the new law, Andhra Pradesh was India''s largest microfinance market accounting 30 percent of borrower accounts and loan outstanding of microfinance institutions. Post the promulgation, the Indian microfinance industry faced its worst crisis ever with the lower middle class borrower bearing the brunt of the situation. The Andhra Pradesh Government''s stated aim was to protect the poor and yet its actions have resulted in a 600-fold decrease in financing to the very poorest of India''s citizens, according to Legatum Ventures'' report, Microfinance in India: A Crisis at the Bottom of the Pyramid''. This should make everyone pause. The rural poor depend on access to consistent and dependable finance to help smooth patchy income streams and avert financial crisis. The Andhra Pradesh Government''s actions have effectively shut off finance to these most vulnerable of India''s citizens. Indeed, as this paper discusses, the very premise of the AP MFI Act was fundamentally flawed. Quite apart from protecting the poor, the AP MFI Act does just the opposite and risks creating a near term financial and human crisis amongst the rural poor in Andhra Pradesh, while also potentially jeopardizing the Indian Government''s broader financial inclusion agenda. The impact of the new law could be summed up on the following lines: * In the first half of FY11, prior to the promulgation of the new law, MFIs in Andhra Pradesh disbursed Rs. 5,000 crore to borrowers. This dropped to Rs. 8.5 crore in the second half of FY11. * The exit of microfinance companies had created a credit gap of Rs. 4,000 crore in Andhra Pradesh, The Hindu newspaper quoted a senior official of National Bank for Agriculture and Rural Development as saying. * Close to 9.2 million customers or almost one in three microfinance borrowers (almost equal to Mumbai''s suburban population) have defaulted on loan repayment, according to Business Standard and The Economic Times. These members would appear as defaulters in Credit Bureau lists. * Microfinance recovery rates in Andhra Pradesh had fallen to 10 percent from 95 percent. * Your Company has also brought down the residual Andhra Pradesh exposure (Net) to Rs. 236 crore from a high of Rs. 1,491 crore in October 2010 by writing off/ provisioning Rs. 1,129 crore. MicroSave report: No harassment The report of MicroSave, an independent international organization and a close affiliate of CGAP which is housed at the World Bank, is an eye-opener for all concerned. The report, What are Clients doing Post the Andhra Pradesh MFI Crisis'', is based on 76 sessions using participatory methods like focus group discussions, relative preference ranking and financial sector trend analysis during July- August 2011 in the Telangana, Rayalaseema and Coastal Andhra regions of Andhra Pradesh covering the districts of Anantapur, Krishna, Nizamabad and Adilabad. MicroSave also interviewed several government officials, who are involved in SHG movement, bank officials, who have experience in SHG-bank linkage, field staff of SHG federations, field staff of MFIs and their borrowers and SHG members. Below are the extracts from the same: Key findings of MicroSave study are: * MFI members have taken loans at exorbitant interest rates from moneylenders in the absence of loans from MFIs. Moneylenders have increased lending in the past eight to 10 months in areas with higher penetration of MFIs. * Many members had reduced the scale of their business because of lack of access to alternate sources of credit. Members have sold their assets such as house, vehicle, cattle, jewellery, etc., to meet their productive as well as essential non- productive expenditure which have to be met. * Most of the members stopped repaying as other members of the group and the community stopped repaying. * Most of the members denied any harassment from the MFIs, and said that they are willing to repay their loans if MFIs start disbursing fresh loans and if other members in the community also start repaying. * Members would like to carry forward their relationship with MFIs, given the fact that it is an economical and convenient credit option for them. One of the key recommendations (for the State Government/ MFIs): As the majority of the clientele of MFIs are members of SHGs promoted by the Government of Andhra Pradesh, there are chances of issues of conflict between MFIs and the local machinery of the Government. The Government and MFIs should take initiative to establish a forum at both district and state level to resolve any conflicts. Ex Andhra Pradesh Sarpanches back MFIs The grassroots Andhra Pradesh perspective too reflects the plight of the lower middle classes. In view of their plight, eminent ex Sarpanches and other grassroots opinion leaders from 15 districts of Andhra Pradesh have urged the State Government to restart microfinance loans for the poor. Media reports, featuring such requests, have been published regularly by leading regional newspapers including Andhra Bhoomi, Andhra Jyothi, Andhra Prabha, Eenadu, Namasthe Telangana, Sakshi, Surya and Vaartha during the latter half of the fiscal. The media reports focus on the following aspects: * Repeal Ordinance: Sakshi has reported that the State Ordinance against MFI loans had caused the people in Shadnagar area to again depend on usurious moneylenders to run their small businesses since they were unable to find easy credit after MFIs stopped offering loans due to the Ordinance. * Uncertainty due to lack of MFI loans leading to problems: Andhra Prabha has reported that there was an urgent need for the Government to reinstate MFI loans to farmers and the poor classes, who have been badly affected by the lack of credit. The report went on to note that non-availability of bank loans in villages could create a drop in farm output, which could have an adverse impact on the state economy. * Poor in the vortex of debt: Namasthe Telangana has pointed out that farmers had been caught in the vortex of debt as the exit of MFIs has forced them back into the clutches of moneylenders. It reported that the previous year had seen farmers utilize loans from MFIs in a proper manner and benefiting from them. The MFI ordinance had once again increased their reliance on moneylenders, this year. * Interest rates should be reduced: Eenadu has emphasized on the increased interest burden on the lower income classes as a result of the Government''s MFI Ordinance and subsequent dependence on moneylenders. The article highlighted the hardships faced by the rural poor on account of the exit of MFIs and lack of alternative credit options at hand. * Need for microfinance loans: Andhra Prabha has explained the indispensable role that microfinance loans had played not just in agricultural businesses but also in other important small businesses such as the purchase of buffaloes and selling of milk to villagers. Microfinance loans had benefitted a number of people and families improving their living standards. The article emphasized on the advantages of microfinance loans compared to loans from moneylenders in villages. The validity of the AP MFI Act has been challenged by several MFIs, including your Company. The matter is currently pending in the Honorable High Court of Andhra Pradesh. The Sa-Dhan 2011 report had stated that concerted action from all the stakeholders, viz, the Central Government, the RBI, the Government of AP banks, Small Industries Development Bank of India (SIDBI) and National Bank for Agriculture and Rural Development (NABARD), in addition to involvement from industry associations such as the Microfinance Institutions Network (MFIN) and Sa-Dhan (the Association of Community Development Finance Institution), is important for resolution of the AP microfinance crisis. In July 2011, the Central Government released the draft Micro Finance Institutions (Development and Regulation) Bill, 2011 (draft MFI Bill) for public comments. The Draft MFI Bill was subsequently replaced by the Micro Finance Institutions (Development and Regulation) Bill, 2012 (MFI Bill 2012). The MFI Bill 2012, which was presented before the Indian Parliament on May 22, 2012, attempts to regulate the entire microfinance sector, irrespective of the form of institutions involved. The MFI Bill 2012 states that its provisions shall be effective notwithstanding anything inconsistent contained in any other law. The MFI Bill 2012 will require the approval of the Indian Parliament as well as the assent of the President of India and publication in the Official Gazette before becoming law. The draft MFI Bill, among other things, states that its provisions shall be effective notwithstanding anything inconsistent contained in any other law and that microfinance services extended by any MFI registered with the RBI shall not be treated as money-lending for the purpose of any state enactments relating to money-lending and usurious loans. The introduction of the draft MFI Bill is being seen by the MFI industry as a key step towards resolving the uncertainty created by the AP MFI Act. No contagion effect The sensitive Andhra Pradesh situation has not shown any contagion effect with non-Andhra Pradesh operations of SKS Microfinance registering a 11 percent quarter-on-quarter portfolio growth to Rs. 1,320 crore in Q4-FY12 reversing the declining trend over the previous five quarters. Your Company continued to maintain its high collection efficiencies in 17 non-Andhra Pradesh states with the collection figure for the quarter ending March 2012 standing at 95.1 percent. New business initiatives Your Company has built a large distribution network in rural India. As of March 31, 2012, your Company has 13,596 branch managers, assistant branch managers and Sangam Managers who comprise 84 percent of it''s total workforce, across 1,461 branches in 18 states. Your Company can leverage this network to distribute financial and non-financial products of other institutions to the borrower- members at a cost lower than the market price. Your Company''s network also allows such distributors to access a segment of the market to which many do not otherwise have access to. Your Company intends to diversify into other businesses while retaining the core microfinance business focus. Your Company is scaling up certain pilot projects involving fee-based services and secured lending, gradually converting them into separate business verticals. Your Company''s objective in these non-microfinance businesses is to focus on lending that will sustain high repayment rates, increase borrower-members'' loyalty and also provide economic benefits to the borrower-members and their families. Such non- microfinance products and services offer higher operating margins and thus may help your Company to increase the overall Return on Assets (ROA). Your Company currently offers certain loan products that borrower-members can use to purchase products that will increase the productivity of borrower-members and their businesses. Your Company is selective about the products for which loans are issued. To ensure the loans are used for the purchase of the specified product, your Company first enters into a strategic relationship with a selected supplier of the product and specifies the loan disbursement will be made directly to the supplier of the product rather than to the borrower-member. Your Company has two programmes under this category, namely Mobile Phone Loans and Sangam Store Loans. Mobile Phone Loans After a successful pilot programme with Nokia during FY10 and FY11 for financing of mobile phones for the borrower-members, your Company extended this initiative to 11 states in India. The following are the features of MBL: * The annual effective interest rate of the Mobile Phone Loans programme is 26.0 percent and the loan processing fee is 1.0 percent. * A processing/ referral fee is paid to your Company by Nokia and its distributors. * The term of this loan is typically 25 weeks. * The price of the mobile phones financed by your Company ranges from Rs. 1,800 to Rs. 3,000. * Principal and interest payments are due on a weekly basis during the term of the loan. As of March 31, 2011 and March 31, 2012, Mobile Phone Loans constituted 0.4 percent and 1.3 percent respectively, of your Company''s total outstanding loan portfolio. Sangam Store Loans Your Company has also undertaken a pilot project involving a business-to-business loan programme with Metro to fund the working capital requirements of the borrower-members and certain non-borrower-members, who own and operate ''kirana'' or Sangam Stores. * This programme allows Sangam Stores to purchase their inventory of consumer goods and groceries from Metro at wholesale prices. * Loan amounts range from Rs. 2,500 to Rs. 12,500 and are interest free. * The term of the loan is seven days. * Non-members are serviced on the basis of cash-on-delivery. * Your Company also offers credit to non-borrower-members upon satisfactory credit appraisals and obtaining requisite approvals. * Your Company receives a fixed commission from Metro for the total purchases a store makes from it, while utilizing the productivity loan. Dividend Your Directors have not recommended any dividend as your Company reported losses during the year under review. Change in Registered Office The Registered Office of your Company was shifted from Ashoka Raghupathi Chambers, D. No. 1-10-60 to 62, Opp. Shoppers Stop, Begumpet, Hyderabad - 500 016, Andhra Pradesh, India to 3rd Floor, My Home Tycoon, Block - A, 6-3-1192, Kundanbagh, Begumpet, Hyderabad - 500 016, Andhra Pradesh, India with effect from May 7, 2012. Further, the Board in its meeting held on May 7, 2012 recommended shifting of the Registered Office from Andhra Pradesh to Maharashtra, by amendment to the Situation Clause of the Memorandum of Association of your Company, subject to approvals of the Members and Statutory Authorities. Your Company is in the process of obtaining necessary approvals. Management Discussion and Analysis The Management Discussion & Analysis Report for the year under review is presented in a separate section on Page 39 in this Annual report. Corporate Governance Your Company adopts the corporate best practices and is committed to conducting its business in accordance with applicable laws, rules and regulations. Your Company follows the highest standards of business ethics. A report on Corporate Governance is provided on Page 55 in this Annual Report. Resources and liquidity Your Company, being a Systemically Important Non-Deposit Accepting NBFC, is subject to the capital adequacy requirements prescribed by the Reserve Bank of India. Your Company has to maintain a minimum ratio of 15 percent as prescribed under the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 (as amended from time to time) based on total capital to risk weighted assets. Your Company maintained Capital to Risk Asset Ratio (CRAR) of 35.4 percent and 45.4 percent respectively as on March 31, 2012 and as on March 31, 2011 respectively, which is higher than the statutory 15 percent requirement. During the year, your Company has received ratings for various instruments to raise funds and a summary of the ratings is presented in the following table: Agency Item Rating CARE Rating Short Term Debt CARE A1* CARE Rating MFI Grading MFI 2 CARE Rating Assignment CARE A1 (SO) CARE Rating Securitization CARE A1 (SO) Rating withdrawn in May 2012 as no instrument is outstanding. Fixed deposits Your Company has not accepted any fixed deposits and, as such, no amount of principal or interest was outstanding as of the Balance Sheet date. Increase in share capital During the year under review, 32,985 equity shares were issued under the ESOP plans of your Company. Thus, the issued, subscribed and paid-up equity share capital increased from 72,323,910 to 72,356,895 as on March 31, 2012. Post the Balance Sheet date, your Company issued 906,734 Equity Shares under ESOP 2007 on May 4, 2012 and opened QIP issue on July 12, 2012 for issue of Equity Shares pursuant to and in accordance with the provisions of Chapter VIII of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended. The said QIP issue is being carried out in accordance with the resolution passed by the shareholders of your Company through Postal Ballot on December 7, 2011. Further, in terms of Regulations 81(c) of Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, the Board has fixed July 12, 2012 as the ''Relevant Date'' for the purpose and accordingly the floor price is Rs. 75.40 per Equity Share as per the pricing formula under Regulation 85 of Chapter VIII of the SEBI ICDR Regulations, 2009. RBI guidelines The Reserve Bank of India, based on the recommendations of the Malegam Committee, notified the directions, inter alia, for the introduction of new category for MFIs, known as Non Banking Financial Company-Micro Finance Institutions (NBFC-MFIs). Following is the criteria for classifying an NBFC as an NBFC- MFI: Minimum net owned funds of Rs. 5 crore. * Not less than 85 percent of its net assets are in the nature of ''qualifying assets''. * Further the income an NBFC-MFI derives from the remaining 15 percent of assets shall be in accordance with the regulations specified in this regard. * An NBFC, which does not qualify as an NBFC-MFI shall not extend loans to the microfinance sector, which in aggregate exceed 10 percent of its total assets. * Qualifying asset'' shall mean a loan, which satisfies the following criteria: * Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs. 1,20,000. * Loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles. * Total indebtedness of the borrower does not exceed Rs. 50,000. * Tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty. * Loan to be extended without collateral. * Aggregate amount of loans, given for income generation, is not less than 75 percent of the total loans given by the MFIs. * Loan is repayable on weekly, fortnightly or monthly installments at the choice of the borrower. Capital requirement All new NBFC-MFIs shall maintain a capital adequacy ratio consisting of Tier I and Tier II Capital, which shall not be less than 15 percent of their aggregate risk weighted assets. The total of Tier II Capital at any point in time shall not exceed 100 percent of Tier I Capital. Note: i. Among the existing NBFCs to be classified as NBFC-MFIs, those with asset size less than Rs. 100 crore will be required to comply with this norm w.e.f April 01, 2012. Those with asset size of Rs. 100 crore and above are already required to maintain minimum CRAR of 15 percent. ii. The CRAR for NBFC-MFIs, which have more than 25 percent loan portfolio in the state of Andhra Pradesh will be at 12 percent for the year 2011-2012 only. Thereafter, they have to maintain CRAR at 15 percent. Asset classification norms: With effect from April 01, 2013: i. Standard asset means the asset in respect of which no default in repayment of principal or payment of interest is perceived and which does not disclose any problem nor carry more than normal risk attached to the business. ii. Non-performing asset means an asset for which interest/ principal payment has remained overdue for a period of 90 days or more. Provisioning norms: With effect from April 01, 2013 The aggregate loan provision to be maintained by NBFC-MFIs at any point in time shall not be less than the higher of: * 1 percent of the outstanding loan portfolio, or * 50 percent of the aggregate loan installments, which are overdue for more than 90 days and less than 180 days and * 100 percent of the aggregate loan installments, which are overdue for 180 days or more. The RBI has, through its circular dated March 20, 2012, deferred the implementation of the asset classification and provisioning norms prescribed for NBFC-MFIs until April 1, 2013. Pricing of credit: i. All NBFC-MFIs shall maintain an aggregate margin cap of not more than 12 percent. The interest cost will be calculated on the basis of average fortnightly balances of outstanding borrowings, and interest income is to be calculated on the basis of average fortnightly balances of outstanding loan portfolio of qualifying assets. ii. Interest on individual loans will not exceed 26 percent per annum and the same will be calculated on a reducing (diminishing) balance basis. iii. Processing charges shall not be more than 1 percent of gross loan amount. Processing charges need not be included in the margin cap or the interest cap. iv. NBFC-MFIs shall recover only the actual cost of insurance for group, or livestock, life, health for borrower and spouse. Administrative charges, where recovered, shall be as per Insurance Regulatory Development Authority (IRDA) guidelines. Fair Practices Code The Reserve Bank of India on March 26, 2012 amended the Fair Practices Code for all NBFCs including MFIs and Gold Loan companies, requiring NBFC-MFIs and Gold Loan companies to comply with certain additional norms with respect to their lending practices and recovery methods. Your Company has revised the Code of Conduct for field staff, who have been involved in microfinance activities and Gold Loans along with relevant policies and documents in line with the RBI guidelines on Fair Practices Code for NBFCs. On December 21, 2011, your Company submitted an application to the RBI for classification as an NBFC-MFI and is awaiting necessary approval from the RBI. Credit bureau for MFIs In order to address the issue of multiple lending or over-indebtedness, various Micro Finance Institutions/ NBFCs have come together to invest in the Credit Information Bureau, namely High Mark Credit Information Services Private Limited via Alpha Micro Finance Consultants Private Limited. In order to facilitate the collective investment in High Mark as well as undertake other collective steps for building the technology infrastructure for credit information sharing among themselves, and to educate their staff in ensuring good Customer Protection Practices are followed, Alpha has been established as a collective entity by 25 NBFC-MFIs which together have about 70 percent of the total portfolio of the microfinance loans. Your Company invested Rs. 20 lakh in Alpha. Self-regulations for MFIs Your Company is a member of both Industry Associations viz., Microfinance Institutions Network (MFIN) and Sa-Dhan (the Association of Community Development Finance Institution) that aim to work with various stakeholders, including regulators to promote microfinance as a tool for achieving larger financial inclusion goals. These self-regulatory organisations have defined an Unified Code of Conduct for microfinance institutions in India, which seek to create social benefits and promote financial inclusion by providing affordable services to un-served and underserved households. The Code, in addition to reiterating the regulatory guidelines, defines core values and fair practices for the sector so as to ensure that microfinance services through MFIs are provided in a manner that benefit borrowers- members. Ethical approach and dignity for borrowers-members are the key elements of the Code. Globally benchmarked Customer Protection Practices In view of the concerns raised during the Andhra Pradesh situation, your Company has been rolling out several initiatives in order to make Client Protection Principle (CPP) a strategic priority as also to integrate the same into the business plan. Among the initiatives are: Credit bureaus and over-indebtedness: In order to protect members from over-indebtedness, your Company has been playing a leading part in pioneering industry-wide efforts on creating and sharing credit-related information with Credit Bureaus. Between September 2011 and April 2012, your Company obtained Credit Bureau reports for 44 lakh members, while loans have been given to only 26 percent of them. Regulatory compliance: Your Company''s policies and processes along with documentation have been modified to comply with: 1. RBI guidelines of December 2, 2011; 2. RBI Fair Practice Code guidelines of July 2, 2012; 3. Guidelines and codes of industry bodies like Sa-Dhan and MFIN. Third-party verification and endorsement: Your Company has been seeking external validation for compliance. Accordingly, M-Cril, a well-known rating agency, conducted a study during October 2011-December 2011 across five states and issued a fully complaint report. A similar study for the period January 2012-June 2012 covering eight states is being commissioned. Rs. 15 crore investment for CPP: Your Company disclosed on December 7, 2011 that it would invest Rs. 15 crore in the next three years in order to align its customer grievance redressal and CPP with globally recognized benchmarks. Cap on Return on Asset: Your Company announced on December 7, 2011 that it will cap Return on Assets at 3 percent for the core microfinance business. Your Company''s present interest is 24.55 percent as against the Reserve Bank of India prescribed limit of 26 percent. Ombudsman: Mr. Verghese Jacob, a seasoned corporate and social sector expert with three decades of experience, was appointed as its Ombudsman on January 31, 2012. CPP training and certification: Your Company commissioned EDA Rural Systems, a reputed development sector consultancy, to develop a training programme encompassing the seven principles (avoidance of over-indebtedness, transparency, responsible pricing, appropriate collection practices, ethical staff behavior, privacy of client data and grievance redressal mechanism) of CPP and also certify several staff members after imparting Train-The-Trainer coaching to them. CPP assessment: Your Company has volunteered for an independent assessment of its current practices by Smart Campaign Team of Accion International. Their initial comments capture the best practices being implemented by your Company. The final report is awaited. Upgradation of Customer Grievance Redressal systems and processes: Your Company was the first microfinance company in India to start a Toll-free Helpline (1800 300 10000), which is operational in eight Indian languages since July 6, 2009. A couple of new Customer Grievance Redressal initiatives are being implemented to ensure faster complaint resolution. Integrating CPP into employee KRAs: Zero-tolerance policies have been rolled out specifying severe penalties including termination for non-compliance of the regulatory guidelines. The above-mentioned measures will align your Company''s CPP with globally benchmarked best practices, helping your Company''s customer satisfaction levels while addressing policy-makers'' concerns, if any. Information technology Your Company is focused on technology solutions that drive growth. Initiatives are being taken in the following areas: * Cost-effective total branch connectivity solution and strengthen existing communication channels. * Centralization of data for real-time decision making. * Building strong business intelligence reporting and analytics capability. * Consolidation of network, storage and hardware infrastructure by using Cloud and virtualization services to drive economies of scale. * Use of advanced communication channels like video conferencing to increase productivity and efficiencies. * Build robust framework to strengthen technology assets, artifacts and data. The execution of the above-mentioned initiatives will help your Company in achieving its goals. Human Resource Management The Human Resources function has been implementing several initiatives to attract and retain talent. In this regard, the function has been implementing various programmes in the areas of manpower planning and optimization, devising development plans, employee engagement as also indiscipline. A key initiative in this regard is CARE built on the four pillars of: Creative communication, Appreciation for all, Reward and recognition and Energy and enthusiasm. The function has been playing a critical role in ensuring that the field employees follow a standardized set of processes and policies resulting in minimization of business risks and enhancing customer satisfaction. It plays a pivotal role in disseminating Client Protection Practices, Code of Conduct and Staff Ethical Behavior across the organization enabling the human capital of your Company to gear up for future with a special focus on rapid changes pertaining to internal and external environment. Your Company continues to implement various industry first initiatives in the areas of role-based training and certification, performance differentiation and value-based approaches. Building leaders from within will continue to be a priority and your Company continues to strengthen its efforts to build the pipeline. Employee Stock Option Plan (ESOP) and Employee Share Purchase Scheme (ESPS) Presently, stock options have been granted or shares have been issued under the following schemes: A. SKS Microfinance Employee Share Purchase Scheme 2007 (ESPS 2007) B. SKS Microfinance Employee Stock Option Plan 2007 (ESOP 2007) C. SKS Microfinance Employees Stock Option Plan 2008 (Independent Directors) (ESOP 2008 (ID)) D. SKS Microfinance Employee Stock Option Plan 2008 (ESOP 2008) E. SKS Microfinance Employee Stock Option Plan 2009 (ESOP 2009) F. SKS Microfinance Employee Stock Option Plan 2010 (ESOP 2010) G. SKS Microfinance Employee Stock Option Plan 2011 (ESOP 2011) The disclosures with respect to each of the above-mentioned Employee Share Purchase Schemes (ESPS) and Employee Stock Option Plans (ESOP), as required by Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines, 1999, are appended as Annexure - 1 and form part of this report. Particulars of employees Pursuant to the provisions of Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, the names and other particulars of employees are set out in Annexure - 2 to the Directors'' Report. Directors During the year under review, following are the changes: 1. Mr. Suresh Gurumani and Mr. Pramod Bhasin resigned as Directors from the Board of Directors of your Company with effect from May 27, 2011 and August 12, 2011 respectively. 2. Dr. Vikram Akula resigned as the Executive Chairman of your Company with effect from November 23, 2011. 3. Mr. V. Chandrasekaran''s nomination on the Board was withdrawn by Small Industries Development Bank of India (SIDBI) with effect from June 8, 2012. The Board places on record its appreciation for the contribution made by the above-mentioned Directors to your Company and industry during their tenure. Your Company is in the process of appointing a new incumbent in place of Mr. V Chandrasekaran as SIDBI nominee on the board of your Company on completion of certain formalities. Mr. PH. Ravikumar and Mr. Paresh Patel will retire by rotation and are eligible to offer themselves for re-appointment in the ensuing Annual General Meeting. A brief profile of the Directors is given in the Notice of the Ninth Annual General Meeting. Directors'' Responsibility Statement Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, your Directors confirm as under: i) In the preparation of the annual accounts, the applicable accounting standards read with requirements set out under Schedule VI to the Companies Act, 1956 had been followed and there are no material departures from the same. ii) Your Company has 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 your Company at the end of the financial year and of the profit of your Company for that year. iii) Your Company has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities. iv) Your Company has prepared the annual accounts of your Company on a ''going concern'' basis. Auditors The Statutory Auditors of your Company, M/s. S. R. Batliboi & Co, Chartered Accountants, Mumbai, retire at the ensuing Ninth Annual General Meeting and have confirmed their eligibility and willingness to accept office of the Auditors, if appointed. The Audit Committee and the Board of Directors have recommended reappointment of M/s. S. R. Batliboi & Co., as Statutory Auditors of the Company for the FY2012 - 2013 for your approval. Response of the Board to the Auditors'' Comments In terms of the provisions of Section 217(3) of the Companies Act, 1956, the Board would like to place on record an explanation to the Auditors'' comments in their Audit Report dated May 8, 2012: S.No. Auditors'' Comments Response 1. The Company''s Due to the impact of the Andhra Pradesh Microfinance (Money-lending) Regulation Act on accumulated losses at the the field operations in Andhra Pradesh, the Company has prudently written off substantial part end of the financial year of the loans outstanding in the state during the FY2011-12. Your Company has reduced its net are more than fifty percent exposure in AP to Rs. 236.0 crore as on March 31, 2012 from Rs. 1,303.2 crore as on March of its net worth and it has 31, 2011. The net exposure is post provisions and write-offs of Rs. 1,007.2 crore on the AP incurred cash losses in the portfolio during the financial year, which have contributed primarily to the losses reported by current financial year. The your Company for the first time in its history. Notably, the total provisions and write-offs of Company had not incurred Rs. 1,173.5 crore made during the financial year 2011-12 exceed the accumulated losses any cash losses in the of Rs. 1,051.3 crore at the end of the financial year. The Company has a strong networth of immediately preceding Rs. 434.7 crore even after adjusting the accumulated losses and capital adequacy is 35.4 financial year. percent. The regulatory uncertainty created by the AP MFI Act led to reduced bank lending to the sector and for your Company resulting in a decline in the non-AP outstanding loan portfolio during the first three quarters of the financial year 2011-12. Subsequently, with clarity from the nBfC- MFI directions issued by the RBI and the Central Micro Finance Institutions (Development and Regulation) Bill, 2012, your Company accessed higher funds in the fourth quarter of financial year 2011-12, resulting in quarter-on-quarter growth in the non-AP portfolio. The Company expects this trend to continue into the next financial year. However, lower revenues, due to the reduction in non-AP portfolio over the full year, coupled with less than proportionate decrease in expenses, resulted in cash losses in the financial year 2011-12. To control costs, your Company has initiated several measures and also steps to ensure AP operations are cash neutral. 2. We have been informed Employee fraud is an inherent risk in the business the Company operates in, since all the that during the year transactions are cash-based. In case of cash embezzlements, your Company has recovered an there were instances of amount of Rs. 10,859,714 including the insurance cover. Cash embezzlement is 0.09percent cash embezzlements of disbursement during the year. by the employees of the To mitigate this risk to a large extent, the management has put in place several preventive Company aggregating control measures as under: Rs 25,091,317; and loans given to non Procuring indemnity bond from every field staff, with personal guarantee of a third person. existe nt borrowers on - Every bank transaction (deposit/withdrawal) is to be executed by minimum of two staff the basis of fictitious comprising a bank signatory and a confirmed staff. documentation created - The strongbox at every branch is controlled by two keys and the keys are held by two by the employees of the different employees in the branch. company aggregating - Surprise visits are conducted by managerial employees, at the time of carrying out cash/ Rs 133, 313, 975. The bank transactions by field employees. - Minimizing the cash balances at various branches to the lowest level possible (50,000 services of all such employees involved have next day disbursement) been terminated and the There are also several detective controls, as follows: Company is in the process - Employee-wise daily reconciliation of cash balances by the managerial employees at each of taking legal action. The branch outstanding balance (net - Frequent surprise visits by accountants and internal auditors, which covers verification of of recovery) aggregating physical cash and bank balances Rs. 142,440,656 has been - The following is the action taken in such cases: written off. - Terminating services of all the employees involved in cash embezzlements and taking legal action against them * Recovering money from such employees Also, your Company has taken fidelity insurance to minimize the losses from cash embezzlements. In case of loans given to non-existent/ fictitious borrowers, your Company has recovered an amount of Rs. 7,397,648 against these cases including insurance cover. These cases are 0.49percent of disbursement during the year. The following are the various preventive control measures included in the loan process to mitigate the risk of loans to non-existent borrowers/ fictitious borrowers: - All the loans disbursed have a maker/ checker control; wherein all the loans processed by sangam managers are approved by branch managers/ assistant branch managers. - Sangam managers are not deployed in their home towns, so as to prevent collusion with the local people there. - Employee rotation every six months, where in the sangam managers manage different centres at the end of every six months. - Transfer of sangam manager/ branch manager in a span of 9 to 12 months - Developed internal processes to restrict loan disbursements to inactive members Detective controls: - The branch managerial employees perform Loan Utilization Check for every loan disbursed. - The internal audit team, on a test basis, verifies the loan documents and performs Loan Utilization Check for the loans disbursed. Actions taken: - Terminating services of all the employees involved in fake loan transactions and taking legal action against them - Recovering money from such employees The net impact of frauds comes to around 0.51 percent of the total amount disbursed during the year. Your Company is working towards reducing this percentage to the least possible by making process improvements, covering the loss by having an adequate insurance policy and by increasing opportunities for direct contact with our members. During the year, your Company has recovered an amount of Rs. 1.30 crore against fraud amount written off in previous years. Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo The particulars required to be furnished under sub section (1) (e) of Section 217 of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are set out in the Annexure - 3 to this report. Green initiatives During the previous fiscal, your Company started a sustainability initiative with the aim of going green and minimizing the environmental impact. Like last year, this year too your Company has published the Annual Report prepared in compliance with provisions of the Companies Act, 1956 and the Listing Agreement. Intellectual property Your Company has 11 trademarks registered in its name, including the trademark registrations for SKS Microfinance, the composite trademark for SKS in English and eight other Indian languages, and the Swarna Pushpam logo in English. Our trademark registration application for the Swarna Pushpam logo in Telugu language as well as our application for registration of a composite trademark for SKS Microfinance in Bengali language are currently pending. Your Company also has copyright certification of our anthem song titled Udhte Jaayen Badte Jaayen. Acknowledgements Your Directors express their sincere appreciation of the cooperation and assistance received from Sangam Members, shareholders, bankers, and other stakeholders during the year under review. Your Directors also wish to place on record their deep sense of appreciation for the commitment displayed from all executives, officers and field employees resulting in the successful performance of your Company during the year. For and on behalf of the Board of Directors Place: Hyderabad SD/- SD/- Date: July 14, 2012 P.H. Ravikumar M.R. Rao Non-Executive Chairman-Interim Managing Director and CEO

Source : Dion Global Solutions Limited

Quick Links for sksmicrofinance

Corporate Action
Board Meetings
AGM/EGM
Bonus
Rights
Splits
Dividends

Peer Comparison
Competition
Price
Price Performance
Market Cap
Net Sales
Net Profit
Total Assets
Historical Prices
Price of SKS%20Microfin on previous budgets

Related Searches sksmicrofinance Stock Price, SKS%20Microfin Stock Quote, SKS%20Microfin Results , SKS%20Microfin News .. More »

Follow moneycontrol.com

Facebook Twitter RSS Wap SMS SMS Alert iPad iPhone Blackberry OVI Android Window

Explore Moneycontrol

Stocks A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z | Others

Mutual Funds A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.