27th Director's Report

To The Members,

Your directors are pleased to present the Twenty Seventh Annual Report of your Company with the audited accounts for the year ended March 31, 2013.

Financial Results

( in crores)

 

Dividend

Your directors recommend payment of dividend of 2.50 per share of face value of 2 each for the year ended March 31, 2013 against a dividend of 11.50 per share of face value of 10 each for the previous year ( 2.30 per equity share of face value of 2 each). The dividend payout ratio for the year, inclusive of additional tax on dividend will be 36%.

Sub Division of Shares

Pursuant to your approval at the 26^th Annual General Meeting AGM) of the Company held on June 18, 2012, the nominal face value of equity shares of the Company was sub-divided from 10 per equity share to 2 per equity share, with effect from July 26, 2012.

To facilitate this sub-division, shareholders were issued 5 equity shares of 2 each in lieu of one equity share of 10 each held by them as on the record date i.e. July 25, 2012, fixed for this purpose.

Total number of retail shareholders has increased to 17,775 representing an increase of 32% post sub-division of shares.

Disbursements

Loan disbursements during the year were 2,174.39 crores as against 1,486.52 crores in the previous year. GRUH continued to focus mainly on the retail segment and disbursed 1,877.08 crores to 26,370 families. Cumulative disbursements as at March 31, 2013 were 9,516.78 crores.

Golden Jubilee Rural Housing Finance Scheme

GRUH disbursed 724.96 crores in respect of 12,094 dwelling units during the year under the Golden Jubilee Rural Housing Finance Scheme of the Government of India. Cumulative disbursements under the scheme were 3,227.60 crores in respect of 91,313 dwelling units.

Rural Housing Fund

The National Housing Bank (NHB) has formulated a scheme called the Rural Housing Fund – 2008 (RHF). The scheme is aimed towards rural housing undertaken by families falling under the weaker section category as defined in the Reserve Bank of India guidelines on lending to the priority sector. During the year, GRUH has claimed 168.87 crores covering 3,942 families under this scheme. Cumulative disbursements under this scheme were 831.87 crores to 22,444 families.

• Graph: Profit After Tax

Urban Low Income Housing Scheme

The Ministry of Housing and Urban Poverty Allievation (MHUPA) has launched a special scheme called the Urban Low Income Housing Scheme to finance families in the EWS / LIG segment in urban areas. The NHB is the nodal agency for monitoring this scheme. GRUH has funded customers falling under this scheme and has sent its claim to NHB aggregating 21.05 crores in respect of 668 customers during the year.

Credit Risk Guarantee Fund Scheme

The Government of India has launched the Credit Risk Guarantee Fund Scheme for Low Income Housing in urban areas. GRUH has signed the agreement with the Credit Risk Guarantee Fund Trust for participating in the scheme..

Loan Assets

As at March 31, 2013, the loan assets increased to 5,437.80 crores recording a growth of 34%. Loan assets in respect of the retail segment grew by 34% and stood at 5,194.28 crores.

• Graph: Loan Assets Profile

• Graph: Loan Assets and Growth (%)

Non-Performing Loans

As per the prudential norms of NHB, GRUH’s non-performing loans stood at 17.64 crores as at March 31, 2013, constituting 0.32% of the total outstanding loans of 5,437.80 crores. The non-performing loans as at March 31, 2012 were 21.11 crores, constituting 0.52% of the total outstanding loans of 4,066.80 crores.

As at March 31, 2013, GRUH is required to carry a provision of 6.58 crores towards non-performing loans as per NHB norms. However, as a measure of precaution, GRUH carries a wq43provision of 14.94 crores. Net non-performing loans was 2.70 crores on outstanding loans of 5,437.80 crores.

During the year, GRUH has written off 1.59 crores in respect of individual loans where the recovery was difficult in the near future. However, GRUH continued the recovery efforts in respect of written off loans of earlier years and could effect recoveries of 2.26 crores during the year in respect of such written off loans. GRUH also took possession of properties of the defaulting borrowers under the SARFAESI Act and has sold few of such acquired properties.

NHB Refinance

GRUH received refinance sanction of 925 crores from NHB during the year. GRUH availed refinance aggregating to 495.20 crores including 168.87 crores under the Rural Housing Fund. The refinance outstanding as at March 31, 2013 was 2,310.10 crores.

Bank Term Loans

GRUH received sanctions from banks amounting to 1,215 crores of which GRUH availed loans aggregating to 1,184.50 crores. The outstanding bank term loans as at March 31, 2013 were 1,364.50 crores.

Subordinated Debt

During the year, GRUH retired subordinated debt aggregating to 40 crores raised in the FY 2005-06. GRUH issued subordinated debt during the year. As at March 31, 2013, GRUH’s outstanding subordinated debt stood at 35 crores. The debt is subordinated to present and future senior indebtedness of the company and has been assigned rating of “ICRA AA+” by ICRA Limited (ICRA) and “CRISIL AA+” by CRISIL, indicating high safety with regard to timely payment of interest and principal. This rating carries a stable outlook. Based on the balance term to maturity, as at March 31, 2013, 35 crores of the book value of subordinated debt is considered as Tier – II capital under the guidelines issued by NHB for the purpose of computation of Capital Adequacy Ratio.

Non-Convertible Debentures (NCDs)

During the year, GRUH raised NCDs of 350 crores on private placement basis. The NCDs are rated “ICRA AA+” by ICRA, indicating high safety with regard to timely payment of interest and principal. This rating carries a stable outlook. The outstanding NCDs as at March 31, 2013 were 491.70 crores.

Commercial Paper

GRUH raised 4,625 crores through issuance of commercial paper during the year. GRUH’s short term borrowings including commercial paper and short term NCD is rated “CRISIL A1+” and “ICRA A1+”. This rating indicates highest safety regarding timely payment of Financial obligations. Both ratings carry a stable outlook. The outstanding balance of commercial paper as at March 31, 2013 was 50 crores.

Deposits

GRUH mobilised deposits of 277.52 crores and experienced a renewal ratio of 57.48% during the year. The outstanding balance of deposits as at March 31, 2013 was 649.95 crores.

During the year, CRISIL has upgraded GRUH’s fixed deposit programme rating to FAAA from FAA+. The rating indicates Highest Safety as regards repayment of principal and interest. ICRA has retained GRUH’s rating for its fixed deposit programme at MAA+. The rating of MAA+ indicates High Safety as regards repayment of principal and interest. Both ratings carry a stable outlook.

Unclaimed Deposits

As at March 31, 2013, public deposits amounting to 3.04 crores had not been claimed by 680 depositors. Depositors were intimated regarding the maturity of deposits with a request to either renew or claim their deposits and subsequent reminders have been sent.

As per the provisions of Section 205C of the Companies Act, 1956, deposits remaining unclaimed and unpaid for a period of seven years from the date they became due for payment are required to be credited to Investor Education and Protection Fund (IEPF) established by the Government of India. In terms of Section 205C of the Companies Act, 1956, no claim would lie against the Company or the said fund after the said transfer. Accordingly, an amount of 5.83 lacs was transferred to the IEPF during the year.

Unclaimed Dividends

As at March 31, 2013, dividend amounting to 77.61 lacs has not been claimed by shareholders. GRUH has been intimating the shareholders to lodge their claim for dividend from time to time.

As per the provisions of Section 205C of the Companies Act, 1956, dividends remaining unclaimed for a period of seven years from the date of transfer to the unpaid dividend account are required to be credited to the IEPF. Accordingly, unclaimed dividend amount of 3.99 lacs in respect of the financial year 2004-2005 was transferred to IEPF during the year. Unclaimed dividend amounting to 4.38 lacs in respect of the financial year 2005-2006 is due for transfer to IEPF in August 2013. In terms of Section 205C of the Companies Act, 1956, no claim would lie against the Company or the said fund after the said transfer.

• Graph: Loan Outstanding and Gross NPA to Loans (%)

• Graph: Resource Profile

Dematerialisation of Shares

As at March 31, 2013, 97.92% of equity shares of GRUH have been dematerialised by shareholders through National Securities Depository Limited and Central Depository Services (India) Limited.

Risk Management Framework

The Company has a Risk Management Framework, which provides the mechanism for risk assessment and mitigation. The Risk Management Committee (RMC) of the Company comprises the Managing Director, the Executive Director and some members of senior management.

During the year, the RMC reviewed the risks associated with the business of the Company, its root causes and the efficacy of the measures taken to mitigate the same. Thereafter, the Audit Committee and the Board of Directors also reviewed the key risks associated with the business of the Company, the procedures adopted to assess the risks, efficacy and mitigation measures.

Investments

GRUH continues to maintain its Statutory Liquid Ratio (SLR) as stipulated by NHB. Accordingly, GRUH carried investments in approved securities aggregating to 79.10 crores as at March 31, 2013 to meet the requirement of the SLR. GRUH has classified its investments as long-term and valued them at cost. Adequate provision, towards loss, if any, to be experienced on redemption of investments on maturity has been made.

Regulatory Guidelines

Over and above the provisioning required for non performing assets, GRUH is required to carry a provision of 19.79 crores on standard individual home loans of 4,946.93 crores and a provision of 4.73 crores on standard loans other than individual home loans of 473.24 crores as at March 31, 2013. Accordingly, GRUH carries a total provision of 39.46 crores ( 14.94 crores in respect of Non Performing Assets and 24.52 crores in respect of Standard Assets).

GRUH continues to comply with the guidelines issued by NHB regarding accounting standards, prudential norms for asset classification, income recognition, provisioning, capital adequacy, concentration of credit, credit rating, ‘Know Your Customer’ – (KYC), fair practices code and real estate and capital market exposures. The details of compliances are outlined in the Management Discussion and Analysis Report.

The National Housing Bank Act, 1987, empowers NHB to levy a penalty on Housing Finance Companies for contravention of the Act or any of its provisions. NHB has not levied any penalty on GRUH during the year.

The task of overseeing the implementation of the Asset Liability Management (ALM) has been entrusted to the Audit Committee which oversees and reviews the ALM position vis-à-vis risk management.

GRUH’s Capital Adequacy Ratio stood at 14.56% as against the minimum requirement of 12%. Tier – I capital was 12.93% against the minimum requirement of 6%.

The Government of India has set up the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) under section 21 of the SARFAESI Act, 2002 to have a central database of all mortgages created by lending institutions. The object of this registry is to compile and maintain data relating to all transactions secured by mortgages. Accordingly, GRUH has registered with CERSAI and submitted data in respect of all outstanding loans as at March 31, 2013.

Human Resource Development

At GRUH, human resource development is considered vital for effective implementation of business plans. Constant endeavours are being made to offer professional growth opportunities and recognitions, apart from imparting training to employees. During the current year, besides the in-house induction training programmes in lending operations, recoveries and accounts, employees were also nominated to training programmes conducted by NHB and other institutions. 226 employees underwent different training programmes.

GRUH’s staff strength as at March 31, 2013 was 517.

SAFA Award

South Asian Federation of Accountants (SAFA) has awarded “Certificate of Merit” to GRUH for its Annual Report for the year ended March 31, 2011. A certificate was awarded to GRUH in the category ‘Financial Services Sector’.

Employees Stock Option Scheme

The stock options granted to directors and eligible employees operate under two schemes, i.e. ESOS-2007 and ESOS-2011. The disclosures as required under Clause 12 of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) guidelines, 1999, as amended, have been made in the annex to this report.

• Graph: Net Interest Income and NIM to Average Assets

• Graph: Return on Equity & Return on Assets (%)

Particulars regarding Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Expenditure

GRUH does not have any foreign exchange earnings and expenditure. Particulars relating to conservation of energy and technology absorption stipulated in the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, are not applicable to GRUH.

Particulars of Employees

GRUH had 2 employees as at March 31, 2013 employed throughout the year who were in receipt of remuneration of 60 lacs or more per annum.

In accordance with the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, the name and other particulars of such employees are set out in the annex to the. Directors’ Report. However, as per the provisions of Section 219(1) (b) (iv) of the Companies Act, 1956, the Directors’ Report is being sent to all shareholders of the Company excluding the annex. Any shareholder interested in obtaining a copy of the said annex may write to the company secretary at the registered office of the Company.

Directors

In accordance with Articles 134 and 135 of the Articles of Association of the Company and the provisions of the Companies Act, 1956, Mr. Keki M. Mistry, Ms. Renu Sud Karnad and Mr. S. G. Mankad, directors of the Company, retire by rotation at the ensuing AGM and are eligible for reappointment. Your directors commend their re-appointment.

Necessary resolutions for the re-appointment of the aforesaid directors have been included in the notice convening the ensuing AGM.

All the directors of the Company have confirmed that they are not disqualified from being appointed as directors in terms of Section 274(1)(g) of the Companies Act, 1956.

Auditors

M/s. Sorab S. Engineer & Co., Chartered Accountants, statutory auditors of the Company having registration number 110417W retire at the ensuing AGM and are eligible for re-appointment.

The Company has received a certificate from the statutory auditors to the effect that their re-appointment, if made, would be within the limits prescribed under Section 224(1B) of the Companies Act, 1956. The statutory auditors have also confirmed that they hold a valid certificate issued by the “Peer Review Board” of The Institute of Chartered Accountants of India.

Corporate Governance – Voluntary Guidelines

The Board of Directors have taken cognisance of the ‘Corporate Governance Voluntary Guidelines 2009’ issued by the Ministry of Corporate Affairs (MCA) in December 2009. While the guidelines are recommendatory in nature, the board recognises the importance and need to constantly assess governance practices thereby ensuring a sustainable business environment that generates long-term value to all key stakeholders. The board has adopted several provisions of the said guidelines.

Directors’ Responsibility Statement

In accordance with the provisions of Section 217(2AA) of the Companies Act, 1956 and based on the information provided by the management, your directors state that:

• In the preparation of annual accounts, the applicable accounting standards have been followed;
• Accounting policies selected were applied consistently.Reasonable and prudent judgements and estimates were made so as to give a true and fair view of the state of affairs of the Company as at March 31, 2013 and of the profit of the Company for the year ended on that date;
• Proper and sufficient care has been taken 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 frauds and other irregularities;
• The annual accounts of the Company have been prepared on a going concern basis..

Management Discussion and Analysis Report

In accordance with clause 49 of the listing agreements, the Management Discussion and Analysis Report forms a part of this report.

Acknowledgements

Your directors take this opportunity to place on record their appreciation to all employees for their hard work, spirited efforts, dedication and loyalty to GRUH. The employees have worked based on principles of honesty, integrity and fair play and this has helped GRUH in maintaining its growth. The directors also wish to place on record their appreciation to shareholders, depositors, referral associates, NHB, financial institutions and banks for their continued support.

• Graph: Risk Weighted Assets and Capital Adequacy Ratio

• Graph: No. of Staff Members, No. of Branches and Cost to Income Ratio (%)