17th ANNUAL REPORT 2011 2012 - S.M.I.L.E. …...HSBC Bank SIDBI ICICI Bank (Bank of Rajasthan Ltd.)...

17th

ANNUAL REPORT 2011 - 2012

REGISTERED & CORPORATE OFFICE

No. 4, Dr. NATESAN ROAD, ASHOK NAGAR, CHENNAI – 600 083

TAMILNADU, INDIA. Tel: 044 – 2371 8588, 044 – 42318049

Fax: 044 – 2371 8589 Website: www.smileltd.org

S.M.I.L.E. MICROFINANCE LIMITED

2

CORPORATE INFORMATION

BOARD OF DIRECTORS

M. Sathiyamoorthi, M.A., B.G.L

Chairman & Managing Director Erstwhile. IAS Officer

J. Bradley Swanson, B.A. MBA

Director Nominee of DWM Investments (Cyprus) Limited

Aleem Remtula, B.A. MBA Director Nominee of DWM Investments (Cyprus) Limited

Indrani Singh, B.A. Director Nominee of DWM Investments (Cyprus) Limited Erstwhile Senior Executive in Public Sector Bank and Regional Manager in Friends of Women`s World Banking (FWWB)

A. Tamilarason, M.Com. Whole-Time Director Erstwhile Banker

COMPANY SECRETARY

STATUTORY AUDITORS

G. Somasundaram, M.Com, ACS

M/s. Victoria Mathews &

Santhakumar

Chartered Accountants

21, (Old No.6) New Street, Nungambakkam Chennai 600 034.

OFFICES

Registered & Corporate

4, Dr. Natesan Road, Ashok Nagar, Chennai 600 083, Tamilnadu, India.

Regional

1&2, Lake Area, Melur Road, Uthangudi Post, Madurai 625 107

3

FUNDERS

BANKS FINANCIAL INSTITUTIONS

Andhra Bank Agri Development Finance (Tamilnadu) Ltd.

BNP Paribas Ananya Finance for Inclusive Growth Pvt. Ltd.

Canara Bank IFMR Capital Finance Private Ltd.

Central Bank of India M.V. Microfin Pvt. Ltd.

Corporation Bank Maanaveeya Development & Finance Pvt. Ltd.

Development Credit Bank Opportunity Microfinance India Ltd.

HDFC Bank Reliance Commercial Finance Ltd.

HSBC Bank SIDBI

ICICI Bank (Bank of Rajasthan Ltd.)

IDBI Bank

Karnataka Bank

Karur Vysya Bank

Kotak Mahindra Bank

Punjab National Bank

State Bank of Patiala

The Ratnakar Bank Ltd.

The South Indian Bank Ltd.

Vijaya Bank

Yes Bank

4

BOARD COMMITTEES

AUDIT COMMITTEE BORROWING & INVESTMENT COMMITTEE

Mr. M. Sathiyamoorthi

Mr. A. Tamilarason

Mr. J. Bradley Swanson

Primary Nominee - DWM Investments (Cyprus) Ltd.

Mr. Aleem Remtula

Secondary Nominee - DWM Investments (Cyprus) Ltd.

Mrs. Indrani Singh

Tertiary Nominee - DWM Investments (Cyprus) Ltd.


Mr. A. Tamilarason



Mr. Aleem Remtula


Mrs. Indrani Singh


SHARE ALLOTMENT & TRANSFER COMMITTEE

CREDIT & NON-PERFORMING ASSETS REVIEW COMMITTEE


Mr. A. Tamilarason



Mr. Aleem Remtula


Mrs. Indrani Singh



Mr. A. Tamilarason



Mr. Aleem Remtula


Mrs. Indrani Singh


REMUNERATION & COMPENSATION COMMITTEE

ASSET LIABILITY MANAGEMENT & RISK MANAGEMENT COMMITTEE


Mr. A. Tamilarason



Mr. Aleem Remtula


Mrs. Indrani Singh



Mr. A. Tamilarason



Mr. Aleem Remtula


Mrs. Indrani Singh


NOMINATION COMMITTEE


Mr. A. Tamilarason



Mr. Aleem Remtula


Mrs. Indrani Singh


5

DIRECTORS’ REPORT

Your Directors are pleased to present the Seventeenth Annual Report of your Company

together with the Audited Statement of Accounts and the Auditors’ Report of your Company

for the financial year ended, 31st March 2012.

FINANCIAL PERFORMANCE

The financial performance for the year 2011-12 is given below:

(Rupees.in Lakhs)

2011 - 12 2010 - 11

Interest Income 5278.97 4816.24

Other Income 157.31 88.84

Total Income 5436.28 4905.08

Less

Expenses 4543.15 3545.92

Profit before Tax 883.13 1359.16

Less

Provisions for:

Income Tax 288.57 470.53

Fringe Benefit Tax 0.00 0.00

Deferred Tax 10.46 (21.49)

Profit after Tax 570.93 910.12

Add:

Balance b/f from previous years 1056.37 328.28

Amount available for Appropriation 1627.30 1238.39

Appropriations:

Statutory Reserve 114.19 182.02

Balance carried to Balance Sheet 1513.11 1056.37

1627.30 1238.39

Equity Share Capital 1733.96 1733.96

Reserves 5631.63 5060.70

CRAR (Capital to Risk-weighted Asset Ratio) 48.58% 41.47%

6

The Company earned a GROSS INCOME of Rs. 54.36 Crore (Previous Year Rs. 49.05

Crore) and PROFIT BEFORE TAX (PBT) of Rs. 8.83 Crore (Previous Year Rs. 13.59 Crore),

with expenditures of Rs. 45.53 Crore (Previous Year Rs. 35.46 Crore).

The Company earned a PROFIT AFTER TAX (PAT) of Rs. 5.71 Crore (Previous year Rs.

9.10 Crore). The amount transferred to Statutory Reserve is Rs. 1.14 Crore (Previous year

Rs. 1.82 Crore).

Despite the limited support extended by Banks and Funders due to the negative

microfinance environment, the Company was able to grow its Gross Income, with total

income increasing by 11%. However, due to restrictions on Interest Cap Margin and

increased operational expenditures, profit decreased compared to the previous year. PBT

stood at 883.13 Lacs, 35% less than the previous year. Net Profit stood at Rs. 570.93 Lakhs.

Net margin (PAT/Total income) stood at 10.5% against 18.55% in the previous year. Net

Worth increased to Rs. 72.57 Crore from Rs. 67.31 Crore in 2010-11.

MICROFINANCE SECTOR SCENARIO

Like other Indian MFIs, SMILE has faced operational and financial challenges in the months following the Andhra Pradesh crisis in October 2010. In May 2011, the introduction of stringent regulatory limitations on interest rates, margins, loan tenors and loan sizes have curtailed disbursement activity, increased compliance costs and reduced margins. Sector-wide funding constraints through December 2011 led to contraction of the loan portfolio. In the last quarter of fiscal year 2012, bank lending slowly resumed to the sector and securitizations through existing and new lenders have further given the Company capital to lend. In May 2012, the Finance Minister introduced a much-awaited microfinance bill to Parliament. This bill would empower the central bank to regulate the sector and introduce an overarching legislative framework for it. This bill would remove MFIs from the purview of state-level legislation, like the one introduced in October 2010 by Andhra Pradesh Government which precipitated the crisis. This bill would offer additional clarity to the sector and by establishing rules for lending rates, margins, recovery methods, and processing fees, among other things. It also introduced a separate category of NBFC-MFI. Collections for Andhra Pradesh MFIs remain minimal. Some of the MFIs have entered corporate debt restructuring and are slowly winding down their portfolio. Others have already taken large losses to their portfolios. The repayment crisis seems to be limited to AP-based portfolios, and the company has no exposure to Andhra Pradesh. S.M.I.L.E. MICROFINANCE LIMITED is one of the largest players in Tamilnadu with over 150 Branches in Tamilnadu and Puducherry. The Company serves 4 Lakh families and provides them a vehicle for poverty alleviation. Our Mission is to empower poor women to become self-reliant. To date, the Company has disbursed Rs. 1406.30 Crore across Tamilnadu and Puducherry, while ensuring 99% collection from its borrowers without coercive collection methods.

7

LOAN DISBURSEMENTS

During the Year, the Company sanctioned loans to 3.8 lakh (previous year 3.3 lakh)

Borrowers. Loan disbursement for the Year amounted to Rs. 403.02 Crore, an increase of

Rs. 26.32 Crore (7%) from Rs. 376.70 Crore in the previous year. Average loan size

increased to Rs. 11,310 from Rs. 11,272 in the previous year.

FUNDERS

The Company was able to obtain Funds amounting to Rs. 85.28 Crore through Term Loans

and Rs. 123.04 Crore through Securitization of its Pool of Credit Portfolio. The Company

was able to add The Ratnakar Bank and IFMR Capital to its Funders List for the year.

LOAN SERVICING

During the year, the Company repaid Rs. 78.55 Crore to all its funding Banks & Financial

Institutions. It serviced all its Term Loans promptly, earning an excellent and enviable

reputation for Loan-servicing.

ARREARS / PORTFOLIO AT RISK (PAR)

There was some contagion in arrears from the Andhra Pradesh Ordinance in the State

border District of Vellore. Due to effective recovery efforts of the Company, the PAR and

arrears remained at low levels at year-end with PAR at Rs. 0.14 Crore compared to Rs. 1.60

Crore in the Previous Year.

PAR >30 days amounted to Rs. 0.13 Crore representing 0.06% of the Portfolio. Non-

Performing Assets amounted to Rs. 0.08 Cr constituting 0.04% of loan portfolio as at

31/3/2012. The Company made a Loan Loss Provision of Rs. 0.08 Crore. The Company also

made a Contingent Provision against Standard Assets of Rs. 0.36 Crore.

COMPUTERISATION OF OPERATIONS

With a view to handle the increased volume of operations and servicing the ever-increasing number of loan beneficiaries efficiently, in-house application software designed to handle all aspects of the Company’s micro finance operations and accounting functions on-line has been implemented.”

DEPOSITS

The Company has not accepted any public deposits during the Year.

8

PRUDENTIAL NORMS AND GUIDELINES

The Reserve Bank of India (RBI), the Regulator, has issued a set of guidelines and Directives to NBFC-MFIs regulating interest rates, margins, loan tenors, loan sizes, customer incomes limits, and Qualifying Assets and Net Owned Funds, among other things. SMILE shall continue to adhere to the guidelines/Directives of the RBI with regard to

prudential norms, capital adequacy, Fair practices code and all other norms as applicable to

NBFC-MFIs. It will also continue to adhere to the guidelines of the RBI with regard to

prudential norms, acceptance of deposits, capital adequacy and all other norms as

applicable to non-deposit taking NBFCs.

DIRECTORS

Mr. A. Tamilarason, Director of the Company retires by rotation at the ensuing Annual

General Meeting and, being eligible, offer himself for re-appointment.

During the year under review:

i) Mr. C. Ponnuchamy, Director of the Company, tendered his resignation from

the Directorship and his resignation letter has been accepted by the Board.

ii) A. Tamilarason was appointed as a Whole Time Director of the Company for

a period of 2 (Two) years w.e.f., 14/12/2010 and his appointment was

approved by the Shareholders of the Company at their Annual General

Meeting held on 27/06/2011. Mr. A. Tamilarason is liable to retire by rotation

at the ensuing Annual General Meeting. Also, since his appointment as a

Whole-Time Director will expire on 13/12/2012, approval of the members in

their ensuing meeting scheduled to be held on 22nd August, 2012 is sought for

his re-appointment as a whole time Director.

iii) Dr. N. Sethuraman, Promoter of the Company, who held the position of

Chairman, tendered his resignation from the position of Chairman and

Director and the same was accepted by the Board at its Meeting held on 25th

October, 2011. On his resignation, the designation of Mr. M. Sathiyamoorthi

was changed from Managing Director to Chairman & Managing Director.

iv) Mrs. N. Buvaneswari, who was a Director of the Company, tendered her

resignation from the position of Director and the same was accepted by the

Board at its Meeting held on 25th October, 2011.

v) Dr. S. Brathibba, who held the position of Director, tendered her resignation

from the position of Director and the same was accepted by the Board at its

Meeting held on 29th November, 2011.

9

The Board took note of the valuable contributions made by the resigned Directors to the

Company in their tenure and their active participation in the Board and Committee Meetings.

AUDITORS

M/s Victoria Mathews & Santhakumar, Chartered Accountants, Chennai retire at the

conclusion of the Seventeenth Annual General Meeting and are eligible for reappointment.

Directors recommend their reappointment for the current Financial Year.

INFORMATION AS PER SECTION 217 (1) (E) OF THE COMPANIES ACT, 1956

The Company has continued to adopt measures to conserve electrical energy by installing

Capacitors & Power Factor Meter in its Corporate Office and also by replacing incandescent

bulbs and tube lights with CFL lighting.

The Company did not have any foreign exchange earnings or expenditures during this

Financial Year.

PARTICULARS OF EMPLOYEES’ REMUNERATION

Statement of particulars pursuant to the provisions of Section 217 (2A) of the Companies

Act, 1956 read with Companies (Particulars of Employees) Rules, 1975 as amended:

The Company does not have any employee who was in receipt of remuneration of

prescribed sum under the said Rules during this Financial Year.

DIVIDEND

The Company did not consider any dividend payment for the current Financial Year as it is

planning on re-investing profits and accumulating reserves in order to more rapidly grow the

business.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Company has proposed to utilize up to 5% of the Profit after Tax during this Financial

Year towards CSR activities.

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to Section 217 (2AA) of the Companies Act, 1956, the Directors confirm:

10

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,

have been followed and there are no material departures from the same;

ii) the Directors have selected such accounting policies and applied them

consistently and made judgments and estimates that are reasonable and prudent

so as to give a true and fair view of the state of affairs of the Company as at

March 31, 2012 and of the profit of the Company for the year ended on that date;

iii) the Directors have 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 the Company and for preventing and

detecting fraud and other irregularities; and

iv) the Directors have prepared the Annual Accounts of the Company on a ‘going

concern’ basis.

CORPORATE GOVERNANCE

Even though, Clause 49 of the Listing Agreement and the Corporate Governance Report

required under this Clause are not applicable to the Company, as per the requirements of

Guidelines issued by RBI, a separate Report on Corporate Governance is attached which

forms part of Directors’ Report.

ACKNOWLEDGEMENTS

The Board of Directors wishes to place on record their sincere thanks for the wholehearted

support by the Company’s Lenders and Bankers, Statutory Authorities, and the Reserve

Bank of India. The Board also wishes to record its sincere appreciation for the commitment

of its employees at all levels in successfully tackling the challenges faced by the Company

during this Year and for their continued efforts to achieve the Company’s goals.

By Order of The Board


Sd/-

M. SATHIYAMOORTHI

CHAIRMAN & MANAGING DIRECTOR

Chennai - 600083 Dated: 07th June, 2012

11

REPORT ON CORPORATE GOVERNANCE

Corporate Governance is the commitment of an organization to follow Ethics, Fair Practices

and Transparency in all its dealings with its various stakeholders such as Customers,

Employees, Investors, Government and the Society at large. Sound Corporate Governance is

the result of external marketplace commitment and legislation plus a healthy Board Culture

which directs the policies and philosophy of the Organization. Your Company is committed

to good Corporate Governance in all its activities and processes even though it is only an

Unlisted Public Limited Company.

COMPANY PHILOSOPHY

S.M.I.L.E. MICROFINANCE LIMITED’s philosophy on Corporate Governance envisages

adherence to the highest levels of Transparency, Accountability and fairness, in all areas of

its operations and in all interactions with its stakeholders. The Board shall work to ensure the

success and continuity of the Company’s business through the appointment of Qualified

Management and through on-going monitoring to assure that the Company’s activities are

conducted in a Responsible, Ethical and Transparent manner.

BOARD of DIRECTORS

In terms of Corporate Governance philosophy, all statutory and other significant material

information are placed before the Board of Directors to enable it to discharge its

responsibility of strategic supervision of the Company as trustees of the Shareholders. The

Board of Directors currently consists of five Members. Other than the Chairman & Managing

Director, there is only one Member of the Board who is an Executive Director. The Chairman

& Managing Director M Sathiyamoorthi and Whole-time Director, A. Tamilarason are

Directors representing the Promoter Dr. N. Sethuraman. Besides the above said 2 Directors,

there are 3 Non-Executive Directors nominated by DWM Investments (Cyprus) Limited, who

is the largest Shareholder of the Company.

During the Financial Year ended 31st March 2012, seven (7) Board Meetings were conducted

on the following dates viz., 30th May, 2011; 23

rd June, 2011; 22

nd September, 2011; 25

th

October, 2011; 29th November, 2011; 6

th December, 2011, 14

th February, 2012 and not more

than four months elapsed between any two Board Meetings.

Particulars of the Directors’ attendance of Board /Committee Meetings and particulars of

their other company directorships are given below:-

NAME Nature of Directorship Attendance Other

Directorships Board Committee

Dr. N. Sethuraman

Promoter & Non-executive

CHAIRMAN

Chairman up to 25.10.2011.

3 Nil 4

M. Sathiyamoorthi

Executive – Chairman &

Managing Director (Chairman

and Managing Director

w.e.f.,25.10.2011

6 25 Nil

J. Bradley Swanson Non-Executive & Nominee of 5 15 4

12

DWM Investments (Cyprus)

Limited

Dr. S. Brathibba Non-Executive Zero Nil 2

Aleem Remtula

Non-Executive & Nominee of


Limited

5 16 1

Mrs. Indrani Singh

Non-Executive & Nominee of


Limited

6 20 Nil

Mrs. N. Buvaneswari Non-Executive 2 9 1

A. Tamilarason Executive 7 27 Nil

C. Ponnuchamy Non-Executive 5 13 Nil

CHANGES IN BOARD CONSTITUTION

During the Financial Year ended 31st March 2012, the following changes took place in the

constitution of the Board.

Mr. C. Ponnuchamy who was appointed as an Additional Director by the Board on 25th

March, 2011, was appointed by the Shareholders at their fifteenth Annual General Meeting

held on 27th June, 2011 as a Director liable to retire by rotation.

Due to personal reasons, Mr. C. Ponnuchamy resigned from the position of Director of the

Company with effect from 17.3.2012.

Dr. N. Sethuraman resigned from his position as CHAIRMAN and Director of the Company

with effect from 25th October, 2011. On his resignation, the position of Mr. M.

Sathiyamoorthi, Managing Director of the Company was re-designated as Chairman and

Managing Director.

Mrs. N. Buvaneswari resigned from the position of Director of the Company with effect from

25th October, 2011.

Dr. S. Brathibba resigned as Director of the Company with effect from 29th November, 2011.

COMMITTEES of BOARD

The Board has currently Seven Committees, namely, Asset Liability Management & Risk

Management Committee (ALCO); Audit Committee; Borrowing & Investment Committee;

Credit & Non-Performing Assets Review Committee; Remuneration & Compensation

Committee; Share Allotment & Transfer Committee and Nomination Committee. The Board

is responsible for constituting, assigning and co-opting the members of these Committees.

The Board fixes the Terms of Reference of Committees and also delegates powers to the

Committees from time to time.

The Minutes of the meetings of the Committees are circulated to the Board for its information

and confirmation.

13

AUDIT COMMITTEE

Composition

1. Mr. M. Sathiyamoorthi, Chairman & Managing Director

2. Mr. A. Tamilarason, Director

3. Mr. J. Bradley Swanson, Director (Nominee of DWM)

4. Mr. Aleem Remtula, Director (Nominee of DWM)

5. Mrs. Indrani Singh, Director (Nominee of DWM)

Meetings

The Audit Committee met four (4) times during the Financial Year 2011-12 viz., on 30th

May, 2011; 21st September, 2011; 5

th December, 2011 and 13

th February, 2012.

Terms of Reference

The Role of the Committee, among others will include - :

1. Oversee the Company’s financial reporting process and the disclosure of its financial

information to ensure that the financial statement is correct, sufficient and credible.

2. Recommending to the Board, the appointment, re-appointment and, if required, the

replacement or removal of the Statutory Auditor and the audit fees and also

appointment of External Auditors for Branch Auditing.

.

3. Reviewing with the management, the quarterly and annual financial statements before

submission to the Board for approval, with particular reference to:

a. Matters required to be included in the Director’s Responsibility Statement, in the

Board’s report in terms of clause (2AA) of Section 217 of the Companies Act, 1956;

b. Changes, if any, in accounting policies and practices and reasons for the same;.

c. Major accounting entries involving estimates based on the exercise of judgment by

management;

d. Significant adjustments made in the financial statements arising out of audit findings;

e. Compliance with accounting and other legal requirements relating to financial

statements;

f. Disclosure of any ‘related party transactions’;

g. Qualifications in the Draft Audit Report

.

14

4. Reviewing with the management, performance of Internal Auditors and adequacy of

the internal control systems.

5. Reviewing the adequacy of internal audit function including the structure of the

internal audit department, staffing and seniority of the official heading the

department, reporting structure, coverage and frequency of internal audit.

6. Discussion with Internal Auditors about significant findings and follow up there on.

7. Reviewing the findings of any internal investigations by the internal auditors into

matters where there is suspected fraud or irregularity or a failure of internal control

systems of a material nature and reporting the matter to the Board.

8. Discussion with Statutory Auditors before the audit commences, about the nature and

scope of audit as well as post-audit discussion to ascertain any area of concern.

The Committee shall mandatorily review the following information:

1. Management discussion and analysis of financial condition and results of operations;

2. Statement of ‘related party transactions’ (as defined by the Audit Committee),

submitted by management;

3. Management letters / letters of internal control weaknesses issued by the Statutory

Auditors;

4. Internal Audit reports relating to internal controls of the Company;

REMUNERATION & COMPENSATION COMMITTEE

Composition






The Committee met 0 time during the Financial Year 2011-12.

Terms of Reference

The primary role of the Committee is fixing and revising the remuneration payable to the

Managing Director and Whole-time Directors of the Company from time to time and to

recommend to the Board the same for its approval.

15

BORROWING & INVESTMENT COMMITTEE

Composition






Meetings

The Committee met fifteen (15) times during the Financial Year 2011-12 viz., 17th May,

2011; 22nd June, 2011; 23

rd July, 2011; 21

st September, 2011; 29

th September, 2011; 22

nd

October, 2011; 22nd November, 2011; 5

th December, 2011; 21

st December, 2011; 23

rd

December, 2011; 13th February, 2012; 22

nd February, 2012; 12

th March, 2012; 20

th March,

2012; and 22nd March, 2012.

Terms of Reference

The role of Borrowing & Investment Committee is to approve borrowings from sources like

Banks, Financial Institutions, Corporates, on such terms and conditions as to repayment,

interest rate as it thinks fit and to review proposals for fresh issue of securities, or debt and

approve the same for availment.

CREDIT & NON-PERFORMING ASSETS REVIEW COMMITTEE

Composition






The Committee met four times during the Financial Year 2011-12 viz., 22nd June, 2011; 21

st

September, 2011; 5th December, 2011 and 13

th February, 2012.

Terms of Reference

The Committee has been authorized to review and submit its recommendations to the Board

in the following matters:

16

1. Business Plans; analysis of Member base; Drop outs; Death Benefits to

Members / their Spouses; representations in MFI Associations like MFIN, Sa-

Dhan.

2. Revision in Business Plans, Risk Categorisation of Accounts, Compliances as

per RBI Guidelines in respect of Interest Rates, Margins etc.,

3. Analysing NPAs, suggestions for controlling NPAs, New Business Initiatives

proposed by the Company, etc.

ASSET LIABILITY MANAGEMENT & RISK MANAGEMENT COMMITTEE

(ALCO)

Composition

Asset Liability Management & Risk Management Committee (ALCO) was constituted by the

Company as per the guidelines issued by RBI which are applicable to systemically important

NBFCs.


2. Mr. A. Tamilarason, General Manager – Risk Monitoring & Management




The Committee met 4 (Four) times during the Financial Year 2011-12 viz., 22nd June, 2011;

21st September, 2011; 5

th December, 2011 and 13

th February, 2012.

Terms of Reference

1. Liquidity Risk Management

2. Management of Market (Interest Rate) Risk

3. Funding and Capital Planning

4. Pricing, Profit planning and Growth projections

5. redit and Portfolio Risk Management

6. Setting credit norms for lending products of the company

7. Operational and Process Risk Management

8. Laying down guidelines on KYC norms

9. To approve and revise the actual interest rates to be charged from customers

for different products from time to time applying the interest rate model.

SHARE ALLOTMENT & TRANSFER COMMITTEE

Composition

Share Allotment & Transfer Committee was constituted as per the guidelines of the

Companies Act, 1956.

17


2. Mr. A. Tamilarason, General Manager – Risk Monitoring & Management




Share Allotment & Transfer Committee Charter:

The Committee shall consider all the share transfers, share transmissions and allotment of shares as and when the need arises and the Committee shall prepare a consolidated statement of all share transfers/transmissions effected and allotment(s) of shares made and present the same to the Board for its noting.

The Company did not receive any complaints during the Financial Year 2011-12.

No meeting was held during the Financial Year 2011 – 12 as no allotment / transfer of shares

took place.

NOMINATION COMMITTEE

Composition

Nomination Committee was constituted as per the guidelines issued by RBI for systemically

important NBFCs.






The Committee met ONCE during the Financial Year 2011-12 viz., on 14th February, 2012.

Terms of Reference

The terms of reference of the Nomination Committee includes:

Analyze the necessity of appointment of Directors to the Board whether Executive / Non

Executive / Independent, proposed candidates’ ability in contributing to the good of the

Company, their value addition etc., and recommending the right person for appointment to

the position of Director in the Board, to the Board.

18

REMUNERATION OF DIRECTORS

The details of remuneration paid to Dr. N. Sethuraman, ex-CHAIRMAN and Mr. M.

Sathiyamoorthi, the present Chairman & Managing Director and Mr. A. Tamilarason,

Director for the Financial Year ended 31st March 2012 is as follows:

Remuneration in Rs.

Dr. N. Sethuraman 5,95,000

Mr. M. Sathiyamoorthi 11,78,000

Mr. A. Tamilarason 6,00,000

Note:

In computing the ex-Chairman’s, Managing Director’s and Director’s remuneration,

perquisites have been valued in terms of actual expenditure incurred by the Company in

providing the benefits.

The details of sitting fees paid to directors are as follows:

Name Sitting Fees in Rs. No. of Equity Shares

held in the Company

Board Committee

Mr. C. Ponnuchamy 5000 13000 Nil

Mr. J. Bradley Swanson 5000 12000 Nil

Mr. Aleem Remtula 5000 Nil Nil

Mrs. Indrani Singh 6000 11000 Nil

Mrs. N. Buvaneswari 2000 9000 110000

GENERAL BODY MEETINGS

During the financial year ended 31st March 2012, one (1) Annual General Meeting (AGM)

and one (1) Extraordinary General Meeting (EGM) were held as per details given below:

Date Time Venue

27th June, 2011 (AGM) 11:30 A.M. Meenakshi Bhavan, # 44/1, G.N. Chetty

Road,

T. Nagar, Chennai – 600017.

22nd October, 2011 (EGM) 11:00 A.M. Meenakshi Bhavan, # 44/1, G.N. Chetty

Road, T. Nagar, Chennai – 600017.

All the proposed resolutions, including special resolutions, were passed by the shareholders

as set out in the respective Notices.

CODE OF CONDUCT

The Company has formulated and adopted a Code of Conduct for the Board of Directors.

The Code of Conduct is derived from three interlinked fundamental principles, viz. good

Corporate Governance, good corporate citizenship and exemplary personal conduct.

19

FAIR PRACTICES CODE

The Company has formulated a Fair Practices Code pursuant to the RBI guidelines issued in

this regard to lay down procedures and practices in dealing with the business transactions,

namely, applications for loans and their processing, loan appraisal and terms/conditions,

disbursement of loans including changes in terms and conditions and handling of customer

grievances. The Code came into effect on 17th March, 2007. The Code was amended by the

Board of directors at their meeting held on 30th August, 2008.

DISCLOSURES

The particulars of transactions between the Company and its related parties, as defined in

Accounting Standard 18, are set out the financial statements.

GENERAL SHAREHOLDER INFORMATION

Financial year: 1st April to 31

st March

Shareholding pattern as on 31st March 2012

Category # of Shares %

Promoter Group (Dr. N. Sethuraman,

Friends, Relatives and Associates) 3475000 20.04%

Other Members 2310000 13.32%

Foreign Shareholding:

DWM Investments (Cyprus) Limited 11554639 66.64%

Total 17339639 100.00%

Address for Correspondence Company Secretary

S.M.I.L.E. Microfinance Limited # 4, Dr. Natesan Road,

Ashok Nagar,

Chennai – 600083.

Tel : +91 44 23718588 Tel : +91 44 42318049

Fax: +91 44 23718589

E-mail: [email protected]

Web: www.smileltd.org

For and on behalf of the Board of Directors

Sd/-

M. Sathiyamoorthi

Chairman & Managing Director

Date: 7th June, 2012

Place: Chennai

20

CMD / GM-F&A Certificate

The Board of Directors


This is to certify that

— We have reviewed financial statements and the cash flow statement for the Financial Year ended

31st March 2012 and that to the best of our knowledge and belief:

a) these statements do not contain any materially untrue statement or omit any material fact

or contain statements that might be misleading;

b) these statements together present a true and fair view of the Company’s affairs and are in

compliance with existing accounting standards, applicable laws and regulations.

— There are, to the best of our knowledge and belief, no transactions entered into by the Company

during the Financial Year which are fraudulent or illegal.

— We accept responsibility for establishing and maintaining internal controls for financial reporting.

Sd/- Sd/-

M. Sathiyamoorthi V.T. Prabakaran

Chairman & Managing Director General Manager – Finance & Accounts

Place: Chennai

Date: 7th June, 2012.

21

AUDITORS’ REPORT TO THE MEMBERS OF S.M.I.L.E.MICROFINANCE LIMITED

1. We have audited the attached Balance Sheet of S.M.I.L.E. MICROFINANCE LIMITED as at

March 31, 2012, the Statement of Profit and Loss and the Cash Flow Statement for the year

ended on that date annexed thereto in which are incorporated the returns of 30 branches audited

by other auditors. The branches audited by us and those audited by others have been selected

by the Board on the authority of the shareholders. These financial statements are the

responsibility of the Company’s management. Our responsibility is to express an opinion on

these financial statements based on our audit.

2. We have conducted our audit in accordance with auditing standards generally accepted in India.

Those standards require that we plan and perform the audit to obtain reasonable assurance

about whether the financial statements are free of material misstatement. An audit includes,

examining on a test basis, evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting principles used and significant

estimates made by management, as well evaluating the overall financial statement presentation.

We believe that our audit provides reasonable basis for our opinion.

3. As required by Companies (Auditor’ Report) Order, 2003 as amended by the Companies

(Auditors’ Report) (Amendment) Order, 2004 issued by the Central Government in terms of

section 227 (4A) of the Companies Act, 1956 and on the basis of such checks as we considered

appropriate and according to the information and explanation given to us, we give in the

annexure, a statement of matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred above, we report that:

(a) We have obtained all the information and explanations, which to the best of our

knowledge and belief, were necessary for the purposes of our audit;

(b) In our opinion, proper books of accounts as required by the law have been kept by the

Company, so far as appears from our examination of the books of the Company;

(c) The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt

with by this report are in agreement with the books of account;

(d) In our opinion, the Statement of Profit and Loss and the Balance Sheet comply with the

accounting standards referred to in sub-section (3C) of section 211 of the Companies Act,

1956;

(e) On the basis of the written representations received from the Directors as on March 31,

2012, we report that none of the directors is disqualified as on March 31, 2012 from being

appointed as director in terms of clause (g) of sub-section (1) of section 274 of the

Companies Act, 1956;

22

(f) In our opinion and to the best of our information and according to the explanations given

to us, the said financial accounts, read together with the notes on accounts attached

thereto, give the information required by the Companies Act, 1956, in the manner so

required and give a true and fair view in conformity with the accounting principles

generally accepted in India :

i) In the case of the Balance Sheet, of the State of Affairs of the Company as at

March 31, 2012.

ii) In the case of the Statement of Profit and Loss , of the profits of the Company for

the year ended on that date and

iii) In the case of the Cash Flow Statement, of the cash flows for the year ended on

that date.

For VICTORIA MATHEWS & SANTHAKUMAR

(FRN No. 5458S)


Sd/-

B. SANTHAKUMAR

Partner

Membership No: 27583/200

Place: Chennai

Dated: 07th June, 2012

23

ANNEXURE TO THE AUDITORS’ REPORT

Referred to in paragraph 3 of our Report of Even Date

Re: S.M.I.L.E. MICROFINANCE LIMITED

1. a. The Company is maintaining proper records showing full particulars, including

quantitative details and situation of fixed assets.

b. We are informed by the Management that all the Assets have been physically verified by

them during the year and no material discrepancies were noticed on such verification.

c. The Company has not disposed off any of fixed assets during the year.

2. a. Company has not granted any loans secured or unsecured to companies, firms or other

parties listed in the register maintained under section 301 of the Companies Act, 1956.

Therefore, reporting under sub clauses (a) to (d) of clauses 4 (iii) does not arise.

b. The Company has not taken any loans secured or unsecured from companies, firms or

other parties listed in the register maintained under section 301 of the Companies Act,

1956. Therefore, reporting under sub clauses (e) to (g) of clauses 4 (iii) does not arise.

3. In our opinion and according to the information and explanation given to us, there are adequate

internal control systems commensurate with the size of the Company and the nature of its

business with regard to purchases of fixed assets and for the services rendered. We are

informed that there are no continuing failures to correct major weaknesses in internal control

system, as corrective actions are taken immediately.

4. a) To the best of our knowledge and belief and according to the information and

explanations given to us, we are of the opinion that the particulars of contracts or

arrangements referred to in Section 301 of the Act that need to be entered in the register

maintained under that Section have been so entered.

b) In our opinion, according to the information and explanations given to us, the transactions

made in pursuance of such contracts or arrangements entered in the register maintained

under Section 301 of the Act and exceeding the value of rupees five lakhs in respect of

any party during the year, prima facie, have been made at prices which are reasonable

having regard to the nature of the service and the prevailing market prices at the relevant

time.

5. In our opinion according to the information and explanations given to us, the Company has not

accepted any deposits from the public within the purview of section 58A of the Companies Act,

1956 and the company has complied with the directives issued by Reserve Bank of India with

regard to acceptance of deposits.

6. In our opinion, the Company has an internal audit system commensurate with the size and

nature of its business.

24

7. a. According to the information and explanations given to us, the Company is regular in

depositing undisputed statutory dues including income tax, wealth tax and other material

statutory dues applicable to it with the appropriate authorities during the year.

b. According to the information and explanations given to us, there are no undisputed

amounts payable in respect of income tax, wealth tax and other material statutory dues

applicable to it, which are outstanding as at 31st March, 2012 for a period of more than six

months from the date they became payable.

8. According to the records of the company and the information and explanation given to us, there

are no dues of wealth tax, customs duty, excise duty and cess which have not been deposited on

account of dispute.

9. The Company does not have any accumulated losses and has not incurred cash losses during

the financial year covered by our audit and the immediately preceding financial year.

10. In our opinion and according to information and explanations given to us, the Company has not

defaulted in repayment of dues to Financial Institutions, Banks or Non-banking Financial

Companies.

11. The Company has not granted any loans and advances on the basis of security by way of pledge

of shares, debentures and other securities.

12. The Company does not carry on the business of Chit funds, Nidhi, mutual benefit fund and

society. Hence, the provisions of clause 4 (xiii) of the Order are not applicable to the Company.

13. Based on the examination of records and the information and explanations given to us, the

Company does not deal / trade in shares, securities, debentures and other investments.

14. In our opinion and according to the information and explanations given to us, the terms and

conditions of the guarantees given by the Company in respect of securitisation are not prima

facie prejudicial to the interest of the Company.

15. To the best of our knowledge and belief and according to the information and explanations given

to us, in our opinion, term loans availed by the Company were, prima facie, applied by the

Company during the year for the purposes for which the loans were obtained.

16. According to the information and explanations given to us and on overall examination of the

financial statements of the Company and after placing reliance on the reasonable assumptions

made by the Company for classification of long term and short term usages of funds, we are of

the opinion that, prima facie, short terms funds have not been utilized for long term purposes.

17. The Company has not made preferential allotment of shares to parties and companies covered in

register maintained under section 301 of the Companies Act, 1956.

25

18. The Company has not issued any debentures during the year and therefore the question of

creating security in respect thereof does not arise.

19. The Company has not made any public issue of any security during the year and therefore the

question of disclosing the end-use of money raised by any public issue does not arise.

20. Based on the audit procedures performed and the representation obtained from the

management, we report that no fraud on or by the Company, having a material misstatement on

the financial statements has been noticed or reported during the year under audit.

21. In our opinion and according to the information and explanation given to us, the nature of the

company’s business/activities during the year have been such that other clauses of the said

Order are, in our opinion, not applicable to the Company for the year.

For VICTORIA MATHEWS & SANTHAKUMAR

(FRN No. 5458S)


Sd/-

B. SANTHAKUMAR

Partner


Place: Chennai

Dated: 07th June, 2012


26

BALANCE SHEET as at March 31, 2012

Particulars Note 31.03.2012 31.03.2011

` `

I. EQUITY AND LIABILITIES

(1) Shareholder's Funds

(a) Share Capital 1 173,396,390 173,396,390

(b) Reserves and Surplus 2 563,163,203 506,070,044

(2) Non-Current Liabilities

(a) Long-Term Borrowings 3 1,185,381,401 1,113,268,507

(3) Current Liabilities

(a) Short-Term Borrowings 4 - 4,774,207

(b) Other Current Liabilities 5 139,485,487 80,360,458

(c) Short-Term Provisions 6 4,427,160 16,207,340

Total Equity & Liabilities 2,065,853,641 1,894,076,946

II.ASSETS ` `

(1) Non-Current Assets

(a) Fixed Assets

(i) Tangible Assets 7 6,749,494 5,866,676

(b) Deferred tax assets (net) 8 794,659 1,840,931

(c) Other Non-Current Assets 9 10,111,111 6,316,615

(2) Current Assets

(a) Inventories 10 785,686 1,220,815

(b) Receivables under Financing Activities 11 1,444,625,855 1,612,943,112

(c) Cash and cash equivalents 12 545,080,761 251,623,039

(d) Short-term loans and advances 13 57,706,075 14,265,758

Total Assets 2,065,853,641 1,894,076,946

See accompanying notes forming part of the financial statements Per our report of even date for and on behalf of the Board for VICTORIA MATHEWS & SANTHAKUMAR

Chartered Accountants Sd/-

Sd/- M. SATHIYAMOORTHI CHAIRMAN & MANAGING DIRECTOR

B. SANTHAKUMAR

Partner Membership No: 27583/200 Sd/- A.TAMILARASON Director

Sd/- Place : Chennai G. SOMASUNDARAM Dated : 07.06.2012 Company Secretary


27

STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED March 31, 2012

Sr.

No Particulars Notes 31.03.2012 31.03.2011

` ` I Revenue from operations 14 527,896,540 481,623,403

II Other Income 15 15,731,430 8,884,376

Total Revenue (I +II) 543,627,970 490,507,779

III Expenses:

Financial Costs 16 163,427,193 179,705,722

Employee Benefit Expense 17 179,491,122 130,063,856

Other Administrative Expenses 18 108,303,602 36,486,156

Depreciation and Amortization Expense 19 4,398,713 3,794,075

Provision for NPA 103,188 539,774

Contingent Provisions against Standard Assets (408,421) 4,002,474

Total Expenses 455,315,397 354,592,057

IV Profit before tax 88,312,573 135,915,722

V Tax expense:

(1) Current tax

Current Year 28,857,122 47,053,233

Prior Year 1,316,020 -

(2) Deferred tax (Excess Provision Written Back) 1,046,272 (2,149,261)

VI Profit/(Loss) for the year 57,093,159 91,011,750

VII Earning per equity share of Rs.10/- each:

(1) Basic 3.29 5.25

(2) Diluted 3.29 5.25

See accompanying notes forming part of the financial statements

Per our report of even date for VICTORIA MATHEWS & SANTHAKUMAR for and on behalf of the Board Chartered Accountants

Sd/- Sd/- M. SATHIYAMOORTHI

CHAIRMAN & MANAGING DIRECTOR B. SANTHAKUMAR Partner Membership No: 27583/200

Sd/- A. TAMILARASON

Director



28

NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2012 Note 1: Share Capital

Sr.

No Particulars 31.03.2012 31.03.2011

1 AUTHORIZED CAPITAL ` `

20,000,000 Equity Shares of Rs. 10/- each. 200,000,000 200,000,000

200,000,000 200,000,000

2 ISSUED , SUBSCRIBED & PAID UP CAPITAL

17,339,639 Equity Shares of Rs. 10/- each, Fully Paid up 173,396,390 173,396,390

Total 173,396,390 173,396,390

There is no increase in the capital during the year.

Details of shareholding more than 5%:

Name of the Shareholder

31.03.2012 31.03.2011

No.

% of

holding No.

% of

holding

1 DWM Investments (Cyprus) Limited 11,554,639 66.64% 11,554,639 66.64%

2 Dr. N. Sethuraman 993,000 5.73% 993,000 5.73%

Note 2: Reserves & Surplus ` `

1 Share Premium 374,019,752 374,019,752

2 Statutory Reserve

Balance at the beginning of the Year 26,413,400 8,211,000

Add: Amount transferred from surplus in the statement of Profit & Loss 11,418,632 18,202,400

Closing Balance 37,832,032 26,413,400

3 Surplus (Profit & Loss Account)

Balance brought forward from previous year 105,636,892 32,827,542

Add: Profit for the year 57,093,159 91,011,750

Less: Transfer to Statutory reserve 11,418,632 18,202,400

Closing Balance 151,311,419 105,636,892

Total 563,163,203 506,070,044

There is no change in the Share Premium account during the year.

Note 3: Long Term Borrowings

1 Term Loan ` `

Secured

- From Banks 978,228,246 808,151,819

- From Others.

Bodies Corporate 152,392,155 221,783,688

Statutory Bodies 54,761,000 83,333,000

Total 1,185,381,401 1,113,268,507


29

These loans are secured against hypothecation of the book debts arising out of micro loans.

FROM BANKS `

Andhra Bank - TL 1 33,336,226

Andhra Bank - TL 2 150,000,000

Central Bank of India - TL 2 16,668,000

Corporation Bank -TL.2 91,666,000

Development Credit Bank Ltd. 30,000,000

ICICI Bank Ltd. 25,000,000

IDBI Bank - TL 1 8,333,333

IDBI Bank - TL 1 150,000,000

Karnataka Bank Ltd. 27,433,308

Lakshmi Vilas Bank - TL 2 10,000,000

Punjab National Bank 149,892,573

State Bank of Patiala 58,383,758

The Karur Vysya Bank - TL 5 2,500,000

The Karur Vysya Bank - TL 6 28,137,136

The Ratnakar Bank Ltd. 150,000,000

The South Indian Bank Ltd. 20,831,000

Vijaya Bank 25,000,000

TOTAL 977,181,334

FROM BODIES CORPORATE

Agri Development Finance ( Tamil Nadu) Ltd. -TL 1 4,504,205

Agri Development Finance ( Tamil Nadu) Ltd. -TL 2 7,547,498

Ananya Finance For Inclusive Growth Pvt Ltd 9,444,444

IFMR Capital Finance Private Ltd. 45,062,670

Maanaveeya Development & Finance Pvt Ltd. - TL 3 35,000,000

M V Microfin Pvt Ltd. 50,000,000

Opportunity Microfinance India Ltd. 833,338

TOTAL 152,392,155

FROM STATUTORY BODIES

Small Industries Development Bank of India - TL 2 54,761,000

TOTAL 54,761,000

These loans are secured against hypothecation of vehicles : ICICI Bank - (Loan No 1) 204,184

ICICI Bank - (Loan No 2) 167,732

ICICI Bank - (Loan No 3) 167,732

HDFC Bank - (Loan No 1) 181,622



TOTAL 1,046,912

GRAND TOTAL 1,185,381,401


30

Note 4: Short Term Borrowings

Over Draft Facility ` `

- From Kotak Mahindra Bank - 4,774,207

(Secured against receivables from Micro Credit Loan)

Total - 4,774,207

Note 5: Other Current Liabilities

S.No Particulars 31.03.2012 31.03.2011

` `

1 Interest Accrued but not due on Secured Loans 2,417,602 3,925,875

2 Liability in respect of Securitisation 104,779,346 32,897,451

3 Unmatured surplus on Securitisation 10,969,857 -

4 Insurance premium deposits 4,830,038 -

5 Advance collection – Interest 7,059,254 35,431,495

- Principal 443,040 122,113

6 Others 3,048,149 4,560,018

7 Sundry Creditors for Expenses 5,938,201 3,423,506

Total 139,485,487 80,360,458

Note 6: Short Term Provisions

1 Provision For Employees Benefit

Gratuity payable - 1,645,719

2 Others

Provision for NPA 833,107 729,919

Contingent Provisions against Standard Assets 3,594,053 4,002,474

Provision for Taxation - 9,829,228

Total 4,427,160 16,207,340


31

S.M.I.L.E MICROFINANCE LIMITED Notes Forming Integral Part of the Balance Sheet as at 31st March, 2012

Note : 7 Fixed Asset

I. Fixed Assets (Amount in `)

Sr

No Particulars Rate

Gross Block Depreciation Net Block

01.04.2011

Addition

during the

year

Deduction

during the

year

31.03.2012 01.04.2011

Addition

during the

year

Deduction

during the

year

31.03.2012 WDV as on

31.03.2012

WDV as on

31.03.2011

Tangible Assets

1 Plant and Equipment

Electrical Fixtures 13.91%

1,070,364

13,230

1,083,594

517,103 148,888

665,991

417,603

553,261

2 Furnitures & Fixtures 18.10%

1,095,861

187,200 -

1,283,061

565,795 210,471

-

776,266

506,795

530,066

3 Vehicles (Cars) 25.89%

5,288,528

- -

5,288,528

2,459,564 1,369,200

-

3,828,764

1,459,764

2,828,964

4 Office Equipment 13.91%

1,292,296

396,020 -

1,688,316

442,136 208,289

-

650,425

1,037,891

850,160

5 Computer 40.00%

5,243,184

1,532,135 -

6,775,319

4,138,959 2,372,274

-

6,511,233

264,086

1,104,225

6 Software 40.00%

-

3,152,946 -

3,152,946

- 89,592

-

89,592

3,063,354

-

TOTAL 13,990,233 5,281,531 - 19,271,764 8,123,557 4,398,713 - 12,522,270 6,749,494 5,866,676


32

Note 8: Deferred Tax Asset

S.No Particulars 31.03.2012 31.03.2011

` `

1 As per previous year balance 1,840,931 (308,330)

2 Provision for the year (1,046,272) 2,149,261

Total 794,659 1,840,931

Note 9: Other Non Current Assets

1 Unamortized Expenses 10,111,111 6,316,615

Total 10,111,111 6,316,615

Note 10: Inventories

1 Mobile and Two Wheeler stocks 785,686 1,220,815

-

Total 785,686 1,220,815

Note 11: Receivables under Financing Activities

1 Other Loans & Advances (Secured)

Loans against hypothecation of Two Wheelers-Staff 2,637,462 7,325,239

2 Unsecured considered good:

Micro Credit Loans to Poor Women 1,434,791,631 1,596,998,819

Staff Loans 1,471,122 2,139,479

Interest Accrued on Micro Credit Loans 5,725,640 6,479,575

Total 1,444,625,855 1,612,943,112

Note 12: Cash & Cash Equivalent

1 Cash on Hand 7,056,162 48,455,296

2 Bank Balance

In Current Account 169,176,121 52,184,647

In Fixed Deposits

(a) Earmarked-Security Deposit 1,755,000 -

(b) Earmarked for Lenders Margin Money

upto 12 months Maturity 253,911,798 23,750,000

More than 12 months Maturity 99,000,000 123,500,000

3 Interest accrued on Deposits with banks 14,181,680 3,733,096

Total 545,080,761 251,623,039

Note 13: Short Terms Loans and Advances


33

S.No Particulars 31.03.2012 31.03.2011

` `

1 Loans & Advances –Others

Advance Recoverable in cash or in kind for value to be received 27,087,220 5,248,854

Amount Receivable from Bajaj Allianz Life Insurance Company Ltd towards

….Death Claims & Refunds 25613622 -

Advance Income Tax and TDS (Previous Years) 551,712 715,616

Advance Income Tax and TDS (Current Year) 4,453,522 -

Cash Collateral with a Body Corporate - 7,669,734

Interest accrued on Deposits with body corporate - 631,554

Total 57,706,075 14,265,758

Note: Confirmation of claim submitted and accepted by Bajaj Allianz Life Insurance Co Ltd. not available

Note 14: Revenue from Operations

1 Interest on Loans 465,899,004 444,737,861

2 Profit on securitisation of Micro Credit Loan receivables 24,612,330 19,840,731

3 Processing fee receipts 36,523,463 16,929,556

4 Documentation charges - 34,850

5 Bad debts recovered 861,744 80,405

Total 527,896,540 481,623,403

Note 15: Other Income

1 Dividend earned on Liquid Fund Investments 458,397 472,287

2 Interest on Fixed Deposits 15,273,033 8,412,089

Total 15,731,430 8,884,376

Note 16: Finance Cost

1 Interest to – Banks 118,537,434 116,507,851

- Bodies Corporate 27,140,592 36,104,936

- Statutory Bodies 8,746,937 16,914,310

2 Documentation Charges 1,063,252 451,161

3 Bank Charges 1,903,158 1,151,168

4 Processing Fees – Banks 6,035,819 6,875,226

- Bodies Corporate - 1,701,070

Total 163,427,193 179,705,722

Note 17: Employee Benefit Expenses


34

S.No Particulars 31.03.2012 31.03.2011

` `

1 Salaries & Bonus 148,714,453 102,591,037

2 Staff Welfare Expenses 13,110,894 16,315,120

3 Gratuity Expenses 1,927,259 1,738,687

4 PF and ESI Expenses 13,365,515 7,295,012

5 Directors Remuneration 2,373,000 2,124,000

Total 179,491,122 130,063,856

Note 18: Other Administrative Expenses

1 Telephone Expenses 4,255,068 2,470,142

2 Travelling Expenses 26,848,171 13,741,953

3 Repair & Maintenance ( Building ) 1,552,237 383,800

4 Repair & Maintenance ( Machinery ) 3,033,828 1,283,339

5 Electricity charges 3,157,320 930,440

6 CSR Activity Expenses 718,083 -

7 Customer Welfare Expenses 817,357 -

8 Bad Debts written off 10,127,282 6,796,895

9 General Expenses 496,088 137,110

10 Insurance Expenses 5,125,014 911,833

11 Membership fees 435,294 -

12 Postage & Telegram 330,243 47,436

13 Professional Charges 10,521,144 1,540,806

14 Filing Fees 26,164 55,105

15 Sitting Fees 68,000 108,000

16 Security Expenses 1,017,282 720,714

17 Stationery Expenses 14,559,346 3,416,866

18 Auditors' Remuneration 1,133,000 1,040,000

19 Rents, Rates & Taxes 17,718,064 2,544,382

20 Software Expenses 5,694,788 -

21 Meeting and seminar expenses 669,830 357,335

Total 108,303,602 36,486,156

Note 19: Depreciation & Amortised Cost

Depreciation 4,398,713 3,794,075

Total 4,398,713 3,794,075

20. SIGNIFICANT ACCOUNTING POLICIES:

a) Basis of preparation of financial statements


35

The financial statements have been prepared under historical cost conventions and on

accrual system, assuming the principle of going concern and applying all the applicable

accounting standards as notified by the Government of India/ issued by The Institute of

Chartered Accountants of India as applicable. The Company follows the directions issued by

the Reserve Bank of India for Non- Banking Financial Companies.

b) Cash Flow Statement

Cash flows are reported using the indirect method, whereby profit/(loss) before extraordinary

items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals

or accruals of past or future cash receipts or payments. The cash flows from operating,

investing and financing activities of the Company are segregated based on the available

information.

c) Revenue Recognition:

1) Interest on microfinance loans is recognized on accrual basis, as per the contract with the

borrowers. A portion of interest is charged on loan amount at the time of disbursement up to

30th June, 2011 upfront, which is amortized over the period of loan.

2) Interest on Non-Performing Assets, representing microfinance loans is recognized only when

received.

3) Profit on sale of loan receivables is recognized on transfer of clear title and is apportioned on

time basis.

4) Interest on deposits is recognized on accrual basis.

d) Borrowing Costs:

The interest costs incurred in connection with borrowing of funds are charged to revenue on

accrual basis, and processing fees paid upfront to the funders are charged to revenue on time

basis.

e) Fixed Asset:

1) All fixed assets have been valued at cost inclusive of direct and incidental expenses related to

acquisition.

2) Depreciation on the assets is provided on Written Down Value method at the rates specified

in the Schedule XIV to the Companies Act, 1956.


36

3) In respect of additions to fixed assets, the depreciation is provided on proportionate basis

from the date when the asset is put into use.

f) Inventories:

Inventories comprise of two wheelers, mobiles (both meant for field staff). These are stated

at cost.

g) Provisions:

1. A provision arising out of a present obligation is recognized when it is probable that an

outflow of resources will be required to settle the obligation and the amount that be

reasonably estimated.

2. Whenever there is a possible obligation that may, but probably will not, require an outflow of

resources, the same is disclosed by way of contingent liability.

3. Loans are classified and provided for as per the norms different from but not lower than those

provided under Non Banking Financial (Non- Deposit Accepting and Holding) Companies

Prudential Norms (Reserve Bank) Directions, 2007.

4. In respect of assets sold out, the necessary provisions are included along with the other NPA

provisions.

5. The Company has also made a contingency provision on the standard assets @ 0.25% as

per the Reserve Bank of India directions.

h) Gratuity:

The Company has covered its employees under group gratuity scheme of Life Insurance

Corporation of India. The premium payable to Life Insurance Corporation of India is charged to

revenue.

i) Unamortized Expenses:

This represents the processing fee on loans to the extent not written off.

21) Receivables under Financing Activities:

All loan exposures to borrowers with installments structure are stated at the outstanding balance including overdues.

22) Contingent Liabilities

The Corporate Guarantee given by the Company to Development Credit Bank (to cover the

first loss deficiency up to 5% & 10% on outstanding obligations as at 31.03.2012 of Rs.

1,35,74,729/- & Rs. 5,77,11,771/-) in respect of microcredit borrowers is Rs. 64,49,914/- .


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23) Claims against company not acknowledged as debts – Rs. NIL (Previous Year – Rs.NIL).

24) Estimated amount of Contracts remaining to be executed on capital account and not provided for

is Rs.NIL (Previous Year – Rs.NIL/-)..

25) Reconciliation of subsidiary records with General Ledger has been completed up to 31st March

2012. Steps for elimination of outstanding entries are in progress. Since the outstanding entries

to be eliminated are insignificant, no material consequential effect is anticipated.

26) The entire operation of the company falls under one business segment only viz. Loans.

27) ASSET QUALITY:

Non Performing Assets (NPAs)

2011–12

`

2010–11

`

I Net NPA to Advances (%) NIL NIL

Ii Movement of NPAs (Gross):

a) Opening Balance

b) Additions during the year

c) Reduction during the year

d) Closing Balance

202,912

580,670

-

783,582

943,038

202,912

943,038

202,912

iii Movement of NPAs (Net):

a) Opening Balance

b) Additions during the year

c) Reduction during the year

d) Closing Balance

-

-

-

-

752,893

-

752,893

-

Iv Movement of Provision for NPAs:

a) Opening Balance

b) Provision made during the year

c) Write-off/ Write back of excess

provisions

d) Closing balance

202,912

580,670

-

783,582

190,145

202,912

190,145

202,912

V a) Provision for Standard Assets

b) Contingent Provisions against

Standard Assets.

103,188

3,594,053

539,774

4,002,474

Note: Since the Company follows provisioning norms of providing 10% on standard assets with overdue period ranging from 61 days to 180 days, it results in an additional provision of Rs. 49,525/-

28) Details of Financial Assets sold under Securitization System: Under securitization of financial assets (Micro Finance Portfolio) arrangement between the Company and the Assignees, the Company acts as a collection agent for managing such Portfolio. The Company entered into a separate collection agency agreement in this respect.


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a. DEVELOPMENT CREDIT BANK - (Sec-3 Tr#I):

PARTICULARS 2011-12 2010-11

I No. of Accounts 2,405 NIL

II Aggregate value (net of Provisions)

of accounts sold 20,186,120 NIL

III Aggregate Consideration 20,960,456 NIL

IV Additional consideration realized in respect

of accounts transferred in earlier years NIL NIL

V Aggregate gain/loss over net book value 774,336 NIL

b. DEVELOPMENT CREDIT BANK - (Sec-3 Tr#II):


I No. of Accounts 7,918 NIL


of accounts sold 72,436,680 NIL

III Aggregate Consideration 75,368,073 NIL



V Aggregate gain/loss over net book value 2,931,393 NIL

c. DEVELOPMENT CREDIT BANK - (Sec-4):


I No. of Accounts 5,986 Nil


of accounts sold 47,719,780 Nil

III Aggregate Consideration 49,590,684 Nil



V Aggregate gain/loss over net book value 1,870,904 Nil

The Company maintains a Cash Collateral with Development Credit Bank in respect of the

above transaction and the balance as on 31st March 2012 is Rs.14,647,000/-.

d. RELIANCE COMMERCIAL FINANCE - (Tranche- I):



II Aggregate value (net of Provisions) 195,573,535 Nil


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of accounts sold



of accounts transferred in earlier years Nil Nil


e. RELIANCE COMMERCIAL FINANCE - (Tranche- II):









The Company maintains a Cash Collateral with Reliance Commercial Finance in respect of the

above transaction and the balance as on 31st March 2012 is Rs.7,47,35,792/-.

f. IFMR CAPITAL FINANCE PRIVATE LTD- (Tranche-I)









g. IFMR CAPITAL FINANCE PRIVATE LTD- (Tranche-II)






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h. IFMR CAPITAL FINANCE PRIVATE LTD- (Tranche-III)









The Company maintains a Cash Collateral with IFMR Capital Finance Pvt Ltd in respect of the

above transaction and the balance as on 31st March 2012 is Rs.30,748,006/-.

i. IDBI BANK - (Tranche-I)









j. IDBI BANK - (Tranche-II)







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The Company maintains a Cash Collateral with IDBI Bank in respect of the above

transaction and the balance as on 31st March 2012 is Rs.50,031,000/-.

29) Comparative Figures:

Previous year’s figures have been regrouped/ rearranged wherever necessary.

30) Related Party Transactions:

As per Accounting Standard 18, the disclosures of transactions with the related parties as defined in the Accounting Standard are given below.

Key Management Personnel:

o Dr. N. SETHURAMAN, Chairman (Till 25th October, 2011) o Mr. M.SATHIYAMOORTHI, Chairman & Managing Director (Managing Director till 24th

Oct’2011 and Chairman & Managing Director from 25th Oct’2011) o Mr. A. TAMILARASON, Whole Time Director.

Relatives of Key Management Personnel with whom transactions have taken place: NIL.

Associates / Related entities with whom transactions have taken place:

o Meenakshi Hotels & Entertainment Private Limited.

o Fathi Software (P) Ltd.

o Meenakshi Media Private Limited

The following are the significant transactions of the Company with its related parties.

(a) Lease of premises:

During the year ended March 31, 2012, the Company paid Rs.60,000/- as rental advance (Previous year Rs.60,000/-) and rent Rs.30,000/- (Previous year Rs.60,000/-) to Dr.N.Sethuraman, ex-Chairman of the Company.

(b) Remuneration to whole-time Directors:

During the year ended March 31, 2012, the Company paid remuneration to the whole-time

Directors: –


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1) Dr. N. SETHURAMAN - Rs.595,000/- (Previous Year: Rs. 1,020,000/-)

2) Mr. M.SATHIYAMOORTHI - Rs.1,178,000/- (Previous Year –Rs.972,000)

3) A.TAMILARASON, - Rs. 600,000/-

(c) Purchase of Food Items:

During the year ended March 31, 2012, the Company purchased food items from-

a) Meenakshi Hotels & Entertainment Private Limited amounting to Rs.1,727,411/-(Previous

year: Rs.189,128/-)

b) Meenakshi Media Private Limited amounting to Rs.1,760,721/-(Previous year: Nil).

Note: Food Items purchased for Cash at arms length price (Market Price)

(d) Software Expenses:

During the year ended March 31, 2012, the Company paid Software expenses to-

Fathi Software (P) Ltd. Amounting to Rs. 6,155,723/- (Previous year: Nil).

31) Earnings per Share as per Accounting Standard 20.

Particulars 2011-2012 2010-2011

Profit after tax (`) 57,093,159 91,011,750

No. of Equity Shares of Rs.10 each as on 31st March

17,339,639 17,339,639

Basic EPS (`) 3.29 5.25

32) TAXATION :

Income Tax:

Current Tax is the amount of tax payable on the taxable income for the year and this is

determined in accordance with the provisions of Income Tax Act, 1961

Deferred tax:

Income tax expenses comprise of current and deferred tax charge or credit. Deferred tax assets

/ liabilities are measured by applying tax rate and tax laws that are in force on the date of

adoption of the balance sheet. Deferred tax assets on account of timing differences are

recognized only to the extent there is certainty of its realization. At each balance sheet date, the

carrying amount of deferred tax asset is reviewed based on developments to reassess

realization.


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The Company has arrived at a Deferred Tax Asset of Rs.794,659/- during the year (Previous

year Rs. 1,840,931/-).

33) Accounting Standard 28 – Impairment of Assets:

In the opinion of the management, there is no impairment of any of the Fixed Assets of the Company.

34) Accounting Standard 29 – Provision for Contingent Liabilities and Contingent Assets: The guidelines issued by ICAI in this respect have been incorporated at the appropriate places. 35) Managerial Remuneration:

Particulars Year ended

March 31, 2012 March 31, 2011

Managerial Remuneration 2,373,000 2,124,000

36) Auditors’ Remuneration and other expenses:

Particulars Year ended

March 31, 2012 March 31, 2011

Statutory Auditors’ Fees 792,000 720,000

Branch Auditors’ Fees 340,000 320,000

Service Tax 116,596 107,120

Total Fees 1,248,596 1,147,120

37) Micro, Small & Medium Enterprises

Based on and to the extent of information received by the Company from the suppliers

during the year regarding their status under the Micro. Small and Medium Enterprises

Development Act, 2006 (MSMED Act) and relied upon by the auditors, the relevant

particulars as at the year end is NIL

38) Expenditure in foreign currency:

Foreign Travel – Rs. 1,827,524/- (Previous Year: Rs.NIL)

39) Disclosure of Capital Adequacy & Liquidity:

The Company makes the following disclosure as per the Guidelines for Systemically Important

Non-deposit taking Non-Banking Finance Companies as regards Capital Adequacy, Liquidity and

Disclosure Norms issued by the Reserve Bank of India on Aug 1, 2008:

i. Capital Adequacy Ratio


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(Rs. In Cr)

Particulars As at 31 March

2012 As at 31 March

2011

Tier I Capital 72.56 67.31

Tier II Capital 0.36 0.40

Total Capital 72.92 67.71

Total Risk Weighted Assets 150.64 163.29

Capital Ratios

Tier I Capital as a Percentage of Total Risk Weighted Assets (%)

48.17 41.22

Tier II Capital as a Percentage of Total Risk Weighted Assets (%)

0.24 0.25

Total Capital (%) 48.41 41.47

ii. Exposure to Real Estate Sector, both Direct and Indirect

The Company does not have any direct or indirect exposure to the real estate sector during

the year ended 31st March 2012 and 31st March 2011.

iii. Asset Liability Management

Maturity Pattern of Certain Items of Assets and Liabilities (Rs in Crore)

Up to 1 month

Over 1 month to 2 months

Over 2 months to 3 months

Over 3 months to 6 months

Over 6 months to 1 yr

Over 1 yr to 3 yrs

Over 3 yrs to 5 yrs

Over 5 yrs

Liabilities

Borrowing from Banks

2.74 4.54 10.09 21.10 34.62 45.45 Nil Nil

Assets

Advances 20.77 19.18 17.85 45.19 40.01 0.89 Nil Nil

Investments Nil Nil ` Nil Nil Nil Nil Nil Nil


Sd/- Sd/- M. SATHIYAMOORTHI CHAIRMAN & MANAGING DIRECTOR

B. SANTHAKUMAR Partner



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Sd/- A.TAMILARASON

Director


CASH FLOW STATEMENT FOR THE YEAR ENDED March 31, 2012

CASH FLOW STATEMENT

Year Ended 31st March 2012

Year Ended 31st March 2011

` `

CASH FLOW FROM OPERATING ACTIVITIES Net Profit Before Taxes 88,312,573 135,915,722 Adjustment for Non- Cash Expenditures Provision for NPA (305,233) 4,542,248 Loss on Sale of assets - - Depreciation 4,398,713 3794,075

Operating Profit Before Changes in Operating Assets 92,406,053 144,252,045 Adjustments for: (Increase)/ Decrease in Micro-credit Advances 162,207,188 (232,410,997) (Increase)/ Decrease in Other Current Assets 1,189,064 (3,745,356) (Increase)/ Decrease in Other Loan & Advances (38,084,183) 5,172,070 (Increase)/ Decrease in Miscellaneous Assets (3,794,496) 2,035,933 (Decrease)/Increase in Other Liabilities and Provisions 47,650,082 25,223,022 Net cash generated from operating activities Before Tax 261,573,708 (59,473,284) Income Tax Paid (30,173,142) (47,053,233)

Net cash Generated from Operating Activities After Tax (A) 231,400,567 (106,426,517)

CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets (5,281,531) (1,370,668) Net cash flow in Investing Activities (B) (5,281,531) (1,370,668)

CASH FLOW FROM FINANCING ACTIVITIES Proceeds from Issue of Equity Share Capital Net of issue expenses - 245,584,870 Net Increase in Loans Received 67,338,687 (141,039,389)

Net Cash Generated from Financing Activities (C) 67,338,687 104,545,481

Net Increase/(Decrease) in Cash and Cash equivalents during the year (A)+(B)+( C) 293,457,722 (3,351,705) Cash and Cash Equivalents at the beginning of the year 251,623,039 254,974,745

Cash and Cash Equivalents at the end of the year 545,080,761 251,623,039


Sd/- Sd/-

B.SANTHAKUMAR M. SATHIYAMOORTHI Partner Chairman & Managing Director


Sd/-

A. Tamilarason Director


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Place : Chennai Sd/-

Date : 07th June 2012 G. SOMASUNDARAM Company Secretary

INFORMATION PURSUANT TO PART IV OF SCHEDULE TO THE COMPANIES ACT, 1956 BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

Registration Details:

Registration Number: U67190TN1995PLC030604 Balance Sheet Date: 31.03.2012 State Code: 18

Capital Raised during the year (Rs. In thousands) Public Issue: Nil Bonus Issue: Nil Right Issue: Nil Private Placement: Nil

Position of Mobilisation and Deployment of funds (Rs. In thousands) SOURCES OF FUNDS

TOTAL 2,065,853 Paid up capital 173,396 Share Application Money 0 Reserves & Surplus 563,164 Deferred tax Liabilities 0 Non Current Liabilities 1,185,381 Current Liabilities 143,913

APPLICATION OF FUNDS TOTAL 2,065,853

Net fixed assets 6,749 Investments 0 Current assets 2,048,198

Other Non-Current Assets 10,111

Deferred Tax Asset 795 PERFORMANCE OF THE COMPANY

Turnover 543,628 Total expenditure 455,315 Profit before Tax 88,313 Profit after Tax 57,093 Earnings per share 3.29

V. Generic Names of Principal Product / Services of the Company

(As per monetary terms) Item Code No. (ITC Code) Product / Service Description MICROFINANCE

Per our report of even date

for VICTORIA MATHEWS & SANTHAKUMAR for and on behalf of the

Board Chartered Accountants

Sd/- Sd/-

B. SANTHAKUMAR M. SATHIYAMOORTHI Partner Chairman & Managing Director Membership No: 27583/200

Sd/-

A. Tamilarason Director Place : Chennai Sd/-


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Date : 07.06.2012 G. SOMASUNDARAM Company Secretary

Schedule to the Balance Sheet of a non-deposit taking Non-Banking Financial Company (as required in terms of paragraph 13 of Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 as at 31.03.2012.

Liabilities side :

(Rs. in lakhs)

Particulars Amount

Outstanding

Amount

Overdue

(1) Loans and advances availed by the Non-Banking Financial

Company Inclusive of interest accrued thereon but not paid

(a) Debentures : Secured 0 0

: Unsecured 0 0

(other than falling within the meaning of public deposits*)

(b) Deferred Credits 0 0

(c) Term Loans 11,853 0

(d) Inter-Corporate loans and borrowing 0 0

(e) Commercial Paper 0 0

(f) Other Loans (specify nature) 0 0

* Please see Note 1 below

Assets side :

(2) Break-up of Loans and Advances including bills receivables

(other than those included in (4) below):

(a) Secured 26 0

(b) Unsecured 14,420 12.40

(3) Break up of Leased Assets and stock on hire and other

assets counting towards AFC activities

(i) Lease assets including lease rentals under sundry debtors:

(a) Financial lease 0 0

(b) Operating lease 0 0

(ii) Stock on hire including hire charges under sundry debtors:

(a) Assets on hire 0 0

(b) Repossessed Assets 0 0

(iii) Other loans counting towards AFC activities

(a) Loans where assets have been repossessed 0 0

(b) Loans other than (a) above 0 0


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(4) Break-up of Investments : Cost Market

Value

Current Investments :

1. Quoted :

(i) Shares : (a) Equity 0

(b) Preference 0

(ii) Debentures and Bonds 0

(iii) Units of mutual funds 0

(iv) Government Securities 0

(v) Others (please specify) 0

2. Unquoted :


(b) Preference 0





Long Term Investments :

1. Quoted :


(b) Preference 0





2. Unquoted :


(b) Preference 0




(v) Others (please specify)

0


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(5) Borrower group-wise classification of assets financed as in (2) and (3) above: Please see Note 2 below

Category Amount net of provisions

Secured Unsecured Total

1. Related Parties **

(a) Subsidiaries 0 0 0

(b) Companies in the same group 0 0 0

(c) Other related parties 0 0 0

2. Other than related parties 26 14,420 14,446

TOTAL 26 14,420 14,446

(6) Investor group-wise classification of all investments (current and long term) in shares and

securities (both quoted and unquoted): Please see note 3 below

Category Market / Break-up value or fair value or NAV

Book Value (Net of

Provisions)

1. Related Parties **

(a) Subsidiaries 0 0

(b) Companies in the same group 0 0

(c) Other related parties 0 0

2. Other than related parties 0 0

TOTAL 0 0

** As per Accounting Standard of ICAI (Please see Note 3)

(7) Other Information

Particulars Amount

(i) Gross Non-Performing Assets

(a) Related parties 0 (b) Other than related parties 8 (ii) Net Non-Performing Assets (a) Related parties 0 (b) Other than related parties 0

(iii) Assets acquired in satisfaction of debt 0

NOTES:

1. As defined in paragraph 2(1)(xii) of the Non-Banking Financial Companies Acceptance of Public Deposits Reserve Bank) Directions, 1998.

2. Provisioning norms shall be applicable as prescribed in Non-Banking Financial (Non-Deposit-Accepting or Holding) Companies Prudential Norms(Reserve Bank) Directions, 2007.

3. All Accounting Standards and Guidance Notes issued by ICAI are applicable including for valuation of investments and other assets as also assets acquired in satisfaction of debt. However, market value in respect of quoted investments and break up/fair value/NAV in respect of unquoted investments should be disclosed irrespective of whether they are classified as long term or current in (4) above.


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17th ANNUAL REPORT 2011 2012 - S.M.I.L.E. …...HSBC Bank SIDBI ICICI Bank (Bank of Rajasthan Ltd.)...

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Transcript of 17th ANNUAL REPORT 2011 2012 - S.M.I.L.E. …...HSBC Bank SIDBI ICICI Bank (Bank of Rajasthan Ltd.)...