Indostar Capital Finance Ltd.-இன் இயக்குநர் அறிக்கை

Mar 31, 2018

The Directors take pleasure in presenting the 9^th Annual Report on the affairs of your Company together with the audited financial statements for the financial year ended March 31, 2018.

FINANCIAL HIGHLIGHTS

The key highlights of the standalone audited financial statements of your Company for the financial year ended March 31, 2018 and comparison with the previous financial year ended March 31, 2017 are summarized below:

(Rs. in crore)

Particulars	As at	As at
	March 31,	March 31,
	2018	2017
Total income	830.47	715.54
Total expenditure	469.57	395.12
Profit before taxation	360.90	320.42
Less: Provision for
taxation
- Current tax	125.45	117.45
- Deferred tax asset	(0.13)	(6.06)
Net profit after taxes	235.58	209.04
Transfer to statutory reserve	47.12	41.81
fund pursuant to Section
45-IC of the Reserve Bank
of India Act, 1934
Surplus in the statement	188.46	167.23
of profit and loss
Balance brought forward	636.46	469.23
from previous period
Balance carried to balance	824.92	636.46
sheet
Earnings per share (Face Value Rs.10/- each)
Basic (Rs.)	29.95	28.45
Diluted (Rs.)	27.03	26.09

FINANCIAL PERFORMANCE AND COMPANY’S STATE OF AFFAIRS

Your Company has recorded another year of steady growth, despite a highly competitive environment in the financial services sector. As a part of its growth strategy, your Company expanded its product portfolio in the retail lending segment by launching its vehicle finance business and housing finance business (through its wholly-owned subsidiary IndoStar Home Finance Private Limited). To achieve meaningful scale and support the growth of retail lending segment, your Company significantly expanded its branch network to near 100 branches as against 7 branches as on March 31, 2017 and increased the employee base to more than 1,000 as compared to 93 employees as on March 31, 2017.

Despite of rise in infrastructure and staffing expenses on account of expansion of branch network and increase in employee strength, the profit before tax as on March 31, 2018 increased by 12.63% to Rs.360.90 crore (previous year: Rs.320.42 crore). The profit after tax as on March 31, 2018 increased by 12.70% to Rs.235.58 crore (previous year: Rs.209.04 crore) and the net worth of the Company as on March 31, 2018 increased by 12.92% to Rs.2,145.99 crore (previous year: Rs.1,900.42 crore).

Pursuant to the requirement of the Reserve Bank of India (“RBI”) Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016, a provision of Rs.23.69 crore (previous year: Rs.20.71 crore) at the rate of 0.40% of outstanding standard assets of the Company was made as at March 31, 2018 and pursuant to the requirement of Section 45-IC of the Reserve Bank of India Act, 1934, an amount of Rs.47.12 crore (previous year: Rs.41.81 crore) was transferred to statutory reserve fund. For details of Reserves and Surplus of the Company, please refer Note 4 of the standalone audited financial statements of the Company for the financial year ended March 31, 2018.

Your Company has continued to maintain good asset quality with a net NPA of 1.1% as on March 31, 2018 (previous year: 1.2%), in spite of a difficult macro-economic environment.

The operating and financial performance of your Company has been covered in the Management Discussion and Analysis Report which forms part of the Annual Report.

During the year under review, there has been no change in the nature of business of your Company.

No material changes and commitments, affecting the financial position of your Company have occurred between the end of year under review and date of this Board’s Report.

DIVIDEND

Considering your Company’s rapid growth, launch of vehicle finance business and future strategy and plans, your Directors consider it prudent to conserve resources and despite having sufficient distributable profits, do not recommend any dividend on equity shares for the financial year under review.

CONSOLIDATED FINANCIAL STATEMENTS

In terms of Section 129 of the Companies Act, 2013 read with Rules framed thereunder (“Act”), consolidated audited financial statements of the Company and its subsidiaries shall be laid before the ensuing Annual General Meeting of the Company along with the standalone audited financial statements of the Company for the financial year ended March 31, 2018.

The standalone and consolidated audited financial statements along with the salient features of the financial statements of the subsidiaries of the Company in the prescribed Form AOC-1 forms part of the Annual Report and are also available on the website of the Company at http://www.indostarcapital.com/investors.html.

INITIAL PUBLIC OFFERING

Directors are pleased to inform that, subsequent to the year under review, your Company completed the initial public offering of its equity shares (“IPO”) for 3,22,37,762 equity shares of face value of Rs.10/- each, for cash at a price of Rs.572/- per equity share determined through book building process, comprising a fresh issue of 1,22,37,762 equity shares aggregating to Rs.700 crore and an offer for sale of 2,00,00,000 equity shares aggregating to Rs.1,144 crore by Indostar Capital, Promoter and Holding Company of the Company and 5 (five) other selling shareholders. Equity shares allotted / transferred in the IPO constituted 35.37% of the post-offer equity share capital of the Company.

Pursuant to listing of equity shares on stock exchanges, your Company enjoys the benefit of enhanced brand name and creation of public market for the equity shares of the Company.

The IPO opened on May 9, 2018 (for anchor investors the IPO opened and closed on May 8, 2018) and closed on May 11, 2018. The IPO received an overwhelming response from all categories of investors and was subscribed by 6.8 times.

Post allotment / transfer in the IPO, the equity shares of your Company got listed and commenced trading on the BSE Limited and the National Stock Exchange of India Limited on May 21, 2018.

The proceeds of fresh issue were used towards augmenting the capital base of the Company to meet future capital requirements. There has been no deviation in the utilization of the proceeds from the fresh issue and the proceeds from the offer for sale were remitted to the respective selling shareholders in proportion to the equity shares offered by each of them, after adjusting their share in the offer related expenses.

SUBSIDIARY COMPANIES & THEIR FINANCIAL PERFORMANCE

Your Company has 2 (two) unlisted wholly-owned subsidiaries, IndoStar Asset Advisory Private Limited (“IAAPL”) and IndoStar Home Finance Private Limited (“IHFPL”). Your Company does not have any joint venture(s) / associate company(ies) within the meaning of Section 2(6) of the Act.

During the year under review, there has been no change in the nature of business of the subsidiary companies and there were no additions / deletions in the number of subsidiaries of your Company.

In terms of Regulation 16(1)(c) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”), the Board of Directors adopted a Policy for Determining Material Subsidiary (“Material Subsidiary Policy”) in terms of which IAAPL and IHFPL are not material subsidiaries of your Company. Details of the Material Subsidiary Policy are given in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

The standalone audited financial statements of each of the subsidiaries are available on the website of the Company at http:// www.indostarcapital.com/investors.html#financial-statements-subsidiary-companies-wrap. Members interested in obtaining a copy of the standalone audited financial statements of the subsidiaries may write to the Company Secretary at the Registered & Corporate Office of the Company.

IndoStar Asset Advisory Private Limited

IAAPL is enabled under its objects to carry on the business of inter-alia advising, managing, providing investment advisory services, financial advisory services, management and facilitation services. Currently, IAAPL acts as an investment manager to IndoStar Credit Fund and IndoStar Recurring Return Credit Fund, both, Category II Alternative Investment Funds registered with the Securities and Exchange Board of India (“SEBI”). Since IndoStar Recurring Return Credit Fund is not operational, IAAPL applied to SEBI for surrendering the registration of IndoStar Recurring Return Credit Fund and the application is under process.

During the year under review, the total income of IAAPL was ‘ 0.60 crore (previous year: Rs.3.72 crore) and the loss after tax was Rs.1.08 crore (previous year: profit after tax was Rs.1.33 crore).

IAAPL has incurred loss during the year under review as a result of decrease in the management fees received by IAAPL from IndoStar Credit Fund on account of redemption of investments already made and no fresh investments by the IndoStar Credit Fund.

IndoStar Home Finance Private Limited

IHFPL is registered with the National Housing Bank to carry on the business as a housing finance institution without accepting public deposits consisting of 2 business verticals namely Affordable Home Finance and Retail Home Finance. IHFPL commenced its business operations in September 2017 and considering its growth plans, has expanded its branch network as on date to over 40 branches and employees’ base to over 400 employees.

During the year under review, the total income of IHFPL was Rs.2.90 crore (previous year: Rs.0.65 crore) and the loss after tax was Rs.10.12 crore (previous year: profit after tax was Rs.0.43 crore). IHFPL has incurred loss during the year under review as a result of the significant cost incurred in setting up its branches and hiring of employees to support business expansion and growth.

During the year under review, your Company invested Rs.50 crore and subsequent to the year under review, invested additional Rs.40 crore, in the equity share capital of IHFPL, after which the aggregate investment of your Company in equity share capital of IHFPL increased to Rs.100 crore. Subsequent to the year under review, your Company granted a loan of Rs.100 crore to IHFPL for its business and operational requirements.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The Management Discussion and Analysis Report for the year under review is presented in a separate section forming part of the Annual Report.

SHARE CAPITAL

Authorised Share Capital

During the year under review, the authorised share capital of the Company was i ncreased from Rs.90 crore, divided i nto 9,00,00,000 equity shares of face value of Rs.10/- each to Rs.110 crore, divided into 11,00,00,000 equity shares of face value of Rs.10/- each.

Issued, Subscribed and Paid-up Share Capital

During the year under review, the Company issued and allotted 3,17,460 equity shares on preferential allotment basis, to Mr. R. Sridhar, Executive Vice-Chairman and CEO of the Company.

Subsequent to the year under review, the Company issued and allotted 1,22,37,762 equity shares by way of fresh issue in the IPO and 13,01,394 equity shares pursuant to the exercise of stock options under various ESOP plans of the Company.

Subsequent to the abovementioned allotments, the issued, subscribed and paid-up share capital of the Company stands increased to Rs.92,21,84,150/- divided into 9,22,18,415 equity shares of face value of Rs.10/- each.

Your Company has not issued any equity shares with differential rights as to voting, dividend or otherwise.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

The Board of Directors of your Company comprises 8 (eight) Directors of which 3 (three) are Non-Executive Directors, 4 (four) are Non-Executive Independent Directors and 1 (one) is a Whole-Time Director. The Chairman is a Non-Executive NonIndependent Director. The Board composition is in compliance with the requirements of the Act, the Listing Regulations and the circulars / directions / notifications issued by the RBI (“RBI Directions”). Detailed composition of the Board of Directors has been provided in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

Appointment and Cessation of Director(s)

Cessations:

During the year under review, Mr. Vimal Bhandari resigned from the office of Managing Director & CEO of the Company with effect from April 18, 2017. Mr. Bhandari continued to serve on the Board of the Company as a Non-Executive Director from May 1, 2017 to January 11, 2018.

The Board of Directors place on record their sincere appreciation for the able leadership, valuable contribution and guidance provided by Mr. Bhandari during his association with the Company towards building and shaping the Company in to a well-respected and highly profitable credit institution.

Further, during the year under review, following Directors resigned from the Board of the Company:

- Mr. Shailesh Shirali resigned as Whole-Time Director from January 29, 2018.

- Mr. L. Brooks Entwistle and Mr. Deepak Shahdadpuri resigned as Non-Executive Director(s) from January 29, 2018, respectively.

- Ms. Shweta Bhatia resigned as Non-Executive Director from February 5, 2018.

- Mr. Ravi Narain resigned as Non-Executive Independent Director from January 10, 2018.

- Mr. Eric Stuart Schwartz and Mr. D. Sivanandhan resigned as Non-Executive Independent Director(s) from February 5, 2018, respectively.

The Board of Directors appreciates the guidance provided by Mr. Shailesh Shirali, Mr. L. Brooks Entwistle, Mr. Deepak Shahdadpuri, Ms. Shweta Bhatia, Mr. Ravi Nairain, Mr. Eric Stuart Schwartz and Mr. D. Sivanandhan, during their tenure as Director(s) on the Board of the Company and expresses gratitude for their contribution towards the Company’s growth and success.

Appointments:

Considering your Company’s growth strategy to expand its retail lending segment and the rich experience and expertise of Mr. R. Sridhar in the financial services industry, on the recommendation of the Nomination & Remuneration Committee, the Board of Directors and the Shareholders of the Company at their meetings held on April 18, 2017 and April 28, 2017, respectively, approved appointment of Mr. R. Sridhar as a Whole-Time Director designated as Executive Vice-Chairman & CEO of the Company for a period of 5 (five) years with effect from April 18, 2017.

During the year under review, Mr. Dhanpal Jhaveri, NonExecutive Director of the Company was appointed as the Chairman with effect from June 23, 2017.

Considering the resignation of the Directors and in compliance with the requirements of the Act, the Listing Regulations and the RBI Directions, and in order to strengthen the Board by inducting eminent persons having rich experience not only in the financial services industry but also other relevant fields, the Board of Directors, on the recommendation of the Nomination & Remuneration Committee and the Shareholders of the Company at their meetings held on February 5, 2018 and February 7, 2018, respectively, appointed Mr. Dinesh Kumar Mehrotra, Mr. Hemant Kaul and Ms. Naina Krishna Murthy as Non-Executive Independent Director(s) on the Board of Directors of the Company, each for a term of 5 years with effect from February 5, 2018.

Director(s) Retiring by Rotation

In terms of Section 152(6) of the Act read with the Articles of Association of the Company, Mr. Dhanpal Jhaveri, Director being longest in office, shall retire by rotation and being eligible has offered himself for re-appointment at the ensuing Annual General Meeting of the Company. A brief profile of Mr. Dhanpal Jhaveri has been included in the Notice convening the ensuing Annual General Meeting.

Director(s) Disclosures

Based on the declarations and confirmations received in terms of the provisions of the Act, the Listing Regulations and the RBI Directions none of the Directors on the Board of your Company are disqualified from being appointed as Directors.

The Company has received declaration from the Independent Director(s), affirming compliance with the criteria of independence as stipulated in Section 149(6) of the Act and Regulation 16(1)(b) of the Listing Regulations.

Key Managerial Personnel

In terms of the Act, the following persons are the Key Managerial Personnel (“KMP”) of the Company:

1. Mr. R. Sridhar - Executive Vice-Chairman & CEO;

2. Mr. Pankaj Thapar - Chief Financial Officer; and

3. Mr. Jitendra Bhati - Company Secretary & Compliance Officer

During the year under review following changes took place in the KMPs of the Company:

- Mr. Vimal Bhandari ceased to be a KMP of the Company pursuant to his resignation from the office of Managing Director & CEO of the Company with effect from April 18, 2017;

- Mr. R. Sridhar was designated as KMP of the Company pursuant to his appointment as Whole-Time Director designated as Executive Vice-Chairman & CEO of the Company with effect from April 18, 2017; and

- Mr. Shailesh Shirali ceased to be a KMP of the Company pursuant to his resignation from the office of Whole-Time Director of the Company with effect from January 29, 2018.

RBI DIRECTIONS

Your Company complies with the direction(s), circular(s), notification(s) and guideline(s) issued by the RBI as applicable to your Company as a systemically important non-deposit taking non-banking financial company.

Your Company has complied with the provisions of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, with respect to the downstream investments made by it during the year under review.

COMPLIANCE WITH SECRETARIAL STANDARDS

Your Company is in compliance with the Secretarial Standards on Meetings of the Board of Directors and the Secretarial Standards on General Meeting issued by the Institute of Company Secretaries of India.

DEPOSITS

Your Company being a non-deposit taking non-banking financial company (“NBFC”) has not accepted public deposits during the year under review and shall not accept any deposits from the public without obtaining prior approval of the RBI and accordingly disclosure requirements under Chapter V of the Act read with Rule 8(5)(v) and 8(5)(vi) of the Companies (Accounts) Rules, 2014 are not applicable to your Company.

RESOURCES AND LIQUIDITY

Your Company has diversified funding sources including public sector banks, private sector banks, mutual funds, insurance companies and financial institutions. Funds were raised in line with Company’s Resource Planning Policy adopted by the Board of Directors for the financial year under review, through various modes including bank borrowings, issuance of non-convertible debentures on private placement basis and commercial paper.

During the year under review, your Company has raised funds from inter-alia following sources (i) Rs.1,040 crore as bank borrowings (outstanding as on March 31, 2018: Rs.2,137.37 crore); (ii) Rs.4,355 crore by issuance of commercial paper (outstanding as on March 31, 2018: Rs.1,285 crore); and (iii) Rs.392 crore through issuance of non-convertible debentures (outstanding as on March 31, 2018: Rs.1,179.50 crore).

Applicable disclosures in terms of Regulation 34(3) and Regulation 53(f) of the Listing Regulations as on March 31, 2018 have been provided at Annexure I to this Board’s Report.

Credit Rating(s)

Your Company’s financial discipline and prudence is reflected in the strong credit ratings ascribed by rating agencies, summarised below:

Particulars / Rating Agencies	Rating	Remarks
Long Term:
- Debt Programme		The ratings indicate that the
CARE Ratings Limited	“CARE AA-; Stable”	instruments have high degree of
India Ratings and Research (“Fitch Group”)	“IND AA-/Stable”	safety regarding timely servicing
- Market Linked Debentures		of financial obligations and carry
CARE Ratings Limited	“CARE PP-MLD AA-; Stable”	very low credit risk
Short Term Debt Programme / Commercial Paper:
CRISIL Limited	“CRISIL A1 ”	The ratings indicate that the
CARE Ratings Limited	“CARE A1 ”	instruments have very strong
ICRA Limited	“[ICRA] A1 ”	degree of safety regarding timely payment of financial obligations and carry lowest credit risk. Short Term Debt Programme / Commercial Paper of your Company carry the highest rating by three major credit rating agencies.

Debt Equity Ratio

Your Company’s Debt: Equity ratio as on March 31, 2018 stood at 2.25:1.

Capital Adequacy Ratio

Your Company is well capitalised to provide adequate capital for its continued growth. As on March 31, 2018, the Capital to Risk Assets Ratio (“CRAR”) of your Company stood at 28.3% (Tier I Capital to Risk Assets Ratio was 28.0% and Tier II Capital to Risk Assets Ratio was 0.3%), well above the regulatory limit of 15% as prescribed by the RBI for nonbanking financial companies.

Net Owned Funds

The Net Owned Funds of your Company as on March 31, 2018 stood at Rs.2,119.99 crore, a 13.2% increase over the previous year.

AUDITORS

Statutory Auditors & their Report

S. R. Batliboi & Co. LLP, Chartered Accountants, having ICAI Firm Registration No. 301003E / E300005, were appointed as the Statutory Auditors of the Company at the 6^th Annual General Meeting of the Company held on September 30, 2015 to hold office for a period of 5 (five) years, from the conclusion of the said Annual General Meeting till the conclusion of the 11^th Annual General Meeting of the Company, subject to ratification by Members at every annual general meeting and delegated the powers to the Board of Directors / Committee to fix their remuneration.

The Company has received a written consent from S. R. Batliboi & Co. LLP, Chartered Accountants, for appointment as Statutory Auditors of the Company for a period of 5 years and a certificate, that they are eligible and not disqualified from being appointed as Statutory Auditors, that their appointment would be in accordance with the conditions as may be prescribed in the Act and that they satisfy the criteria provided in Section 141 of the Act and the Companies (Audit and Auditors) Rules, 2014 for appointment of statutory auditors.

Members are requested to note that the Ministry of Corporate Affairs vide notification dated May 7, 2018, inter-alia, notified an amendment to Section 139(1) of the Act whereby the requirement of placing appointment of the statutory auditors for ratification by the members of a company at every annual general meeting has been omitted. Accordingly, subject to provisions of the Act, S. R. Batliboi & Co. LLP, Chartered Accountants hold office of Statutory Auditors of the Company till conclusion of the 11^th Annual General Meeting of the Company.

S. R. Batliboi & Co. LLP, Statutory Auditors in their report(s) on the standalone audited financial statements and consolidated audited financial statements of your Company for the financial year ended March 31, 2018, have not submitted any qualifications, reservations, adverse remarks or disclaimers.

During the year under review, the Statutory Auditors have not reported any incident of fraud to the Audit Committee of the Company.

Secretarial Auditors & their Report

In terms of Section 204 of the Act, the Board of Directors had appointed M Siroya and Company, Practicing Company Secretary, to undertake secretarial audit of the Company for the financial year ended March 31, 2018. The report of M Siroya and Company, Practicing Company Secretary in prescribed Form MR-3 is enclosed herewith at Annexure II to this Board’s Report.

M Siroya and Company, Practicing Company Secretary, in their report on the secretarial audit of your Company for the financial year ended March 31, 2018 has not submitted any qualifications, reservations, adverse remarks or disclaimers.

Maintenance of cost records

Your Company is not required to maintain cost records in terms of Section 148(1) of the Act.

REPORT ON CORPORATE GOVERNANCE

The Corporate Governance Report for the year under review, including disclosures as stipulated under Regulation 34 of the Listing Regulations is annexed to and forms an integral part of this Board’s Report.

A certificate from H Choudhary & Associates, Practicing Company Secretary, confirming compliance of conditions of Corporate Governance as prescribed under the Listing Regulations is annexed to the Corporate Governance Report.

Meetings

The Board meets at regular intervals inter-alia to discuss and review various matters including business performance, business strategies and policies. During the year under review, the Board met 7 (seven) times and several meetings of Committees including the Audit Committee were held. Details with respect to the meetings of the Board of Directors and Committee(s) held during the year under review, including attendance by Directors / Members at such meetings have been provided in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

Board Committees

The Board of Directors, in compliance with the requirements of various laws applicable to the Company and for operational convenience, has constituted several committees to deal with specific matters and has delegated powers for different functional areas to different committees.

The Board of Directors has amongst others, constituted Audit Committee, Credit Committee, Asset Liability Management Committee, Risk Management Committee, Nomination & Remuneration Committee, Corporate Social Responsibility Committee, Stakeholders Relationship Committee, IT Strategy Committee, Debenture Committee, Internal Complaints Committee(s) and Grievances Redressal Committee.

Details with respect to the composition, terms of reference, number of meeting(s) held and attended by respective member(s), roles, powers and responsibilities of the Committee(s) have been provided in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

PERFORMANCE EVALUATION

In terms of the provisions of the Act and the Listing Regulations, the Board of Directors adopted a Board Performance Evaluation Policy and detailed process for facilitating performance evaluation of the Board, as a collective entity, that of its Committee(s) and individual Directors including the Chairman.

In terms of the requirement of Schedule IV of the Act, a separate meeting of the Independent Directors was held on March 23, 2018 to review the performance of the NonIndependent Directors including the Chairman and the Board, as a collective entity. Performance evaluation was carried out by way of obtaining feedback from the Independent Directors through a structured questionnaire prepared in accordance with the Board Performance Evaluation Policy and Performance Evaluation Process.

Based on the questionnaire circulated and discussions at the Independent Directors meeting, the Independent Directors expressed satisfaction with the overall performance of the Board and Non-Independent Directors including the Chairman. The Independent Directors also assessed the quality, quantity and timeliness of flow of information between the Company management and the Board based on various parameters viz. detailed information on business and support functions provided to the Board, action taken by management on suggestions / request by the Board / Committee(s) Members, in-depth discussions at the Board / Committee(s) Meetings and found it to be adequate enough to assist the Board / Committee(s) in performing its duties effectively and reasonably.

Subsequent to the year under review, the Nomination & Remuneration Committee evaluated the performance of the Directors and the Board evaluated the performance of the Directors, Committee(s) of the Board and the Board, as a collective entity, for the year under review. The Nomination & Remuneration Committee and the Board affirmed that the performance of the Board, Committee(s) of the Board and the Directors including the Chairman, during the year under review was satisfactory and adequate.

A statement indicating the manner in which formal evaluation of the Board, Committee(s) of the Board, individual Directors including the Chairman for the year under review was carried out, is provided in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

POLICY ON APPOINTMENT OF DIRECTORS AND SENIOR MANAGEMENT PERSONNEL

In terms of Section 178 of the Act, the Listing Regulations and the RBI Directions, the Board of Directors adopted a Policy on Selection Criteria / “Fit & Proper” Person Criteria inter-alia setting out parameters to be considered for appointment of Directors and senior management personnel of the Company.

Details of the Policy on Selection Criteria/ “Fit & Proper” Person Criteria have been provided in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

REMUNERATION POLICY, DISCLOSURE OF REMUNERATION & PARTICULARS OF EMPLOYEES

Remuneration Policy

In terms of Section 178 of the Act and the Listing Regulations, the Board of Directors adopted a Remuneration Policy inter-alia setting out the criteria for deciding remuneration of Executive Directors, Non-Executive Directors, senior management and other employees of the Company.

Details of the Remuneration Policy have been provided in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

Employee Remuneration

In terms of Section 197 of the Act read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the disclosures with respect to the remuneration of Directors, key managerial personnel and employees of the Company have been provided at Annexure III to this Board’s Report.

Statement containing details of employees as required in terms of Section 197 of the Act read with Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is available for inspection by the Members at the Registered & Corporate Office of the Company during normal business hours on all working days. A copy of the statement may be obtained by the Members by writing to the Company Secretary at the Registered & Corporate Office of the Company.

The Board of Directors confirm that the remuneration paid to the Directors was as per the Remuneration Policy of the Company.

CEO & CFO CERTIFICATE

Compliance Certificate in terms of Regulation 17(8) of the Listing Regulations on the audited financial statements and other matters prescribed therein, submitted to the Board of Directors by the Executive Vice-Chairman & CEO and the Chief Financial Officer of the Company, for financial year ended March 31, 2018 is enclosed herewith at Annexure IV to this Board’s Report.

RISK MANAGEMENT FRAMEWORK

Your Company has in place a mechanism to identify, assess, monitor and mitigate various risks associated with the business of the Company. Major risks identified by the business and functions, if any, are systematically addressed through mitigating actions on a continuing basis. The Board of Directors have adopted a Risk Framework and Policy which inter-alia integrates various elements of risk management into a unified enterprise-wide policy.

The Risk Management Committee of the Company has not identified any elements of risk which in their opinion may threaten the existence of your Company. Details of the risks and concerns relevant to the Company are discussed in detail in the Management Discussion and Analysis Report which forms part of the Annual Report.

Details of the Risk Framework and Policy have been provided in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

INTERNAL CONTROL / INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company’s well-defined organizational structure, documented policies, defined authority matrix and internal controls ensure efficiency of operations, compliance with internal system / policies and applicable laws. The internal control system / policies of your Company is supplemented with internal audits, regular reviews by the management and checks by external auditors. The Audit Committee and the Board of Directors monitor the internal controls system / policies of your Company. The Risk Management Committee and the Audit Committee periodically review various risks associated with the business of the Company including fraud risk and risk mitigants, and ensure that they have an integrated view of risks faced by the Company. The Board of Directors are of a view that your Company’s internal control systems are commensurate with the nature of its business, size and complexity of its operations.

To the best of our knowledge and belief, and according to the information and explanations obtained by us, and based on the report(s) of Statutory Auditors and submission(s) by Internal Auditors of the Company for the financial year under review, the Directors are of the view that the internal financial controls with reference to the financial statements of the Company were adequate and operating efficiently and further confirm that:

(i) the Company has comprehensive internal financial control systems that are commensurate with the size and nature of its business;

(ii) the Company has laid down standards, processes and structures which enable implementation of internal financial control systems across the organization and ensure that the same are adequate and operating effectively;

(iii) the systems are designed in a manner to provide reasonable assurance about the integrity and reliability of the financial statements;

(iv) the Company adopts prudent lending policies and exercises due diligence to safeguard its loan asset portfolio; and

(v) the loan approval process involves origination and sourcing of business, credit appraisal and credit approval in accordance with approved processes / levels.

WHISTLE BLOWER POLICY / VIGIL MECHANISM

In terms of Section 177(9) and Section 177(10) of the Act and the Listing Regulations, the Board of Directors adopted a Whistle Blower Policy/Vigil Mechanism inter- alia to provide a mechanism for Directors and employees of the Company to approach the Audit Committee of the Company and to report genuine concerns related to the Company and provide for adequate safeguards against victimization of Director(s) or employee(s) who report genuine concerns under the mechanism.

Details of the Whistle Blower Policy/Vigil Mechanism have been provided in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

CORPORATE SOCIAL RESPONSIBILITY

In terms of Section 135 of the Act read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, the Board of Directors have constituted a Corporate Social Responsibility (CSR) Committee and in light of your Company’s philosophy of being a responsible corporate citizen, the Board of Directors adopted a CSR Policy which lays down the principles and mechanism for undertaking various projects / programs for the Company’s CSR activities.

Details of the CSR Policy have been provided in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

Disclosures in terms of Section 134(3)(o) and Section 135 of the Act read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, with respect to CSR activities undertaken by the Company during the year under review have been provided at Annexure V to this Board’s Report.

CONTRACTS / ARRANGEMENTS WITH RELATED PARTIES AND RELATED PARTY TRANSACTION POLICY

In terms of the provisions of the Act, the Listing Regulations and the RBI Directions, the Board of Directors adopted a Related Party Transaction Policy to ensure proper approval and reporting of transactions of the Company with its related parties.

In terms of Section 177 of the Act, transactions with related parties were placed before the Audit Committee for its approval. Omnibus approval of the Audit Committee was obtained for related party transactions of repetitive nature, within the limits prescribed by the Board of Directors. The Audit Committee is periodically updated with respect to related party transactions executed under omnibus approval.

During the year under review, your Company had not entered into any related party transactions covered within the purview of Section 188(1) of the Act, and accordingly, the requirement of disclosure of related party transactions in terms of Section 134(3)(h) of the Act in Form AOC - 2 is not applicable to the Company. All other transactions with related parties, during the year under review, were in compliance with the Related Party Transaction Policy. Further, during the year under review, the Company had not entered into transactions with related parties which could be considered to be ‘material’ in accordance with the then effective Related Party Transaction Policy of the Company.

Disclosure of the related party transactions as required under Accounting Standard 18 are reported in Note 25 of the standalone audited financial statements of the Company for the financial year ended March 31, 2018.

Details of the Related Party Transaction Policy have been provided in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

In terms of Section 186(11) of the Act read with Companies (Meetings of Board and its Powers) Rules, 2014, the provisions of Section 186 in respect of loans made, guarantees given or securities provided by the Company are not applicable to the Company.

During the year under review, your Company has made investment in (i) equity share capital of IHFPL, as mentioned herein; (ii) bonds, debt instruments in terms of Investment Policy of the Company; and (iii) liquid securities including in units of mutual funds in terms of the Treasury Policy of the Company. For details of the non-current and current investments of the Company, please refer Note 10 and Note 15, respectively, of the standalone audited financial statements of the Company for the financial year ended March 31, 2018.

Details of Investment Policy and Treasury Policy are provided in the Corporate Governance Report which is annexed to and forms an integral part of this Board’s Report.

EXTRACT OF ANNUAL RETURN

In terms of Section 134(3)(a) and Section 92(3) of the Act read with the Companies (Management and Administration) Rules, 2014, the extract of Annual Return as at financial year ended March 31, 2018 in the prescribed Form MGT-9 has been provided at Annexure VI to this Board’s Report and is also available on the website of the Company at http://www.indostarcapital.com/investors.html#agm-wrap.

EMPLOYEE STOCK OPTION PLANS (“ESOP PLANS”)

Your Company believes that its success and ability to achieve objectives is largely determined by the quality of its workforce and recognises that not only good employment opportunities but also additional motivating mechanisms are needed to incentivise employees and aligning their interest with the interest of the Company. In recognition of the said objective, the Company adopted and implemented IndoStar ESOP Plan 2012 (“ESOP 2012”), IndoStar ESOP Plan 2016 (“ESOP 2016”) and IndoStar ESOP Plan 2016-II (“ESOP 2016-II”).

During the year under review, in light of Company’s pace of growth, increase in business volume and business verticals / financial products of the Company / its subsidiaries, your Company adopted IndoStar ESOP Plan 2017 (“ESOP 2017”) and IndoStar ESOP Plan 2018 (“ESOP 2018”) to attract, retain, motivate and incentivise employees of the Company and its holding / subsidiaries.

During the year under review, ESOP 2012 was amended in order to align it with the statutory requirements of Section 62(1)(b) of the Act, the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (“SEBI ESOP Regulations”) and other applicable laws.

The ESOP Plans of the Company are implemented and administered by the Nomination & Remuneration Committee.

The Board of Directors confirms that the ESOP Plans are in compliance with the provisions of the Act and the SEBI ESOP Regulations. In terms of Regulation 13 of SEBI ESOP Regulations, the Statutory Auditors have certified that ESOP Plans have been implemented in accordance with the SEBI ESOP Regulations and the respective resolutions passed in the general meeting(s) in this regard. The said certificate from Statutory Auditors shall be available for inspection at the ensuing 9^th Annual General Meeting of the Company.

Disclosure with respect to the ESOP Plans in terms of Section 62 of the Act read with Rule 12(9) of the Companies (Share Capital and Debentures) Rules, 2014, have been provided at Annexure VII to this Board’s Report.

Disclosures in terms of Regulation 14 of the SEBI ESOP Regulations read with SEBI Circular No. CIR/ CFD/POLICY CELL/2/2015 dated June 16, 2015 are available on the website of the Company at http://www.indostarcapital.com/investors.html#agm-wrap.

DISCLOSURES UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION & REDRESSAL) ACT, 2013

Consistent with its core values, your Company is committed to create an environment in which all individuals are treated with respect and dignity and promote a gender sensitive safe work environment. Accordingly, the Board of Directors adopted a Care and Dignity Policy and also constituted an Internal Complaints Committee, in compliance with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013.

Considering geographic diversification throughout the country and increase in number of employees, during the year under review, the Board of Directors also constituted Regional Internal Complaints Committees for North, West and South regions.

During the year under review, no complaints related to sexual harassment had been received by the Internal Complaints Committee(s).

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Your Company being an NBFC and engaged in the financial services activities, its operations are not energy intensive nor does it require adoption of specific technology and hence information in terms of Section 134(3)(m) of the Act read with the Companies (Accounts) Rules, 2014 is not provided in this Board’s Report. Your Company is vigilant on the need for conservation of energy.

During the year under review, your Company did not have any foreign exchange earnings and incurred foreign currency expenditure of Rs.0.50 crore (Previous year: Rs.0.11 crore).

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS

During the year under review, no orders have been passed against your Company by any regulator(s) or court(s) or tribunal(s) which would impact the going concern status and / or the future operations of your Company.

DIRECTORS RESPONSIBILITY STATEMENT

To the best of our knowledge and belief and according to the information and explanations obtained by us, pursuant to the provisions of Section 134(3)(c) read with Section 134(5) of the Act, the Directors hereby confirm that:

a) in the preparation of the annual accounts, the applicable accounting standards have been followed and no material departures have been made from the same;

b) they 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 at the end of the financial year and of the profit of the Company for that period;

c) they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) they have prepared the annual accounts on a going concern basis;

e) they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

f) they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

APPRECIATION AND ACKNOWLEDGEMENT

The Directors take this opportunity to express their appreciation to all stakeholders of the Company including the Reserve Bank of India, the National Housing Bank, the Ministry of Corporate Affairs, the Securities and Exchange Board of India, the Government of India and other Regulatory Authorities, the Depositories, the BSE Limited, the National Stock Exchange of India Limited, Bankers, Financial Institutions, Members, Customers and Employees of the Company for their continued support and trust. Your Directors would like to express deep appreciation for the commitment shown by the employees in supporting the Company in achieving continued robust performance on all fronts.

By the Order of the Board of Directors

For IndoStar Capital Finance Limited

Dhanpal Jhaveri

Place: Mumbai Chairman

Date: August 10, 2018 DIN: 02018124