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  142 Golcha House, New Colony, Byramji Town, Nagpur, Maharashtra - 440001

Internal Guidelines on Corporate Governance

Internal Guidelines on Corporate Governance || Swarna Pragati Housing Microfinance Pvt. Ltd.

Internal Guidelines on Corporate Governance
June 26, 2018

1. Introduction:

Swarna Pragati Housing Microfinance Pvt. Ltd. (SPHM or the Company)’s endeavor is to provide financial services to the bottom of the pyramid segment to help build a society where everyone has a conducive habitat to live and work in with dignity and to be the preferred provider of innovative financial solutions for housing, particularly to Economically Weaker Section (EWS) and Low Income Groups (LIG) in rural and semi-urban areas. The vision of SPHM is to be the leader in the housing microfinance in the country, to create a decent habitat for all, to create value for all stakeholders by building a profitable business providing financial assess for housing in hitherto underserved areas. SPHM aims to achieve its mission and vision through the following values:

  • To place the customer’s interest first
  • To be transparent and ethical in approach in all dealings
  • To be sensitive towards social and environmental concerns
  • To encourage teamwork, professionalism and a culture of learning & innovation
     

Corporate Governance plays a pivotal role in building SPHM and providing the right direction to achieve the mission and vision of SPHM through the values set by itself. SPHM recognizes its role as a corporate citizen and endeavors to adopt the best practices and the highest standards of Corporate Governance through transparency in business ethics, accountability to its customers, government, investors, lenders and all other stakeholders. The Companys activities shall be carried out in accordance with good corporate practices and the Company.

 

 

The National Housing Bank having considered it necessary in the public interest and being satisfied that for the purpose of enabling it to regulate the housing finance system of the country to its advantage, NHB has, on February 9, 2017, issued “Housing Finance Companies – Corporate Governance (National Housing Bank) Directions, 2016”. In pursuance of the aforesaid directions, the Company has framed the following internal Guidelines on Corporate Governance. These guidelines have been drafted bearing in mind the size of the Company’s operations and the sector in which it operates. These guidelines also complies with the existing Housing Finance Companies – Corporate Directions, 2016 as last updated by NHB vide its Master Circular dated July 1, 2017. These guidelines shall also be made available in the website of the Company.

  • The Board of Directors along with its Committees shall provide leadership and guidance to the Company’s management and direct, supervise and control the performance of the Company.
  • The Composition of Board shall be as per the Company’s Articles of Association. The Board shall meet a minimum of four (4) times in a calendar year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board.
  • The Board has a vital role to play in the matters relating to policy formulation, implementation and strategic issues which are crucial for the long term development of the organization.
  • In Compliance with Section 165 of the Companies Act, 2013 (‘the Act’), a director shall not hold the office of a director in more than 20 companies. Provided that the maximum number of public companies in which a person can be appointed as a director shall not exceed 10.
  • The Board shall periodically review Compliance Reports of all laws applicable to the Company prepared by the Company as well as steps taken by the Company to rectify instances of non-compliance.

In accordance with the provisions of Section 166 of the Companies Act, 2013 and as a matter of corporate governance, the directors of the Company have the following duties:-

(1)    Subject to the provisions of the Companies Act, 2013, a director of the Company shall act in accordance with the articles of association of the company.

(2)    A director of the company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.

(3)    A director of the company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.

(4)    A director of the company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.

(5)    A director of the company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.

(6)    A director of the company shall not assign his office and any assignment so made shall be void.

 

(1)  Annual operating plans and budgets and any updates.

(2)  Capital budgets and any updates.

(3)  Quarterly results of its operating divisions or business segments.

(4)  Minutes of meetings of audit committee and other committees of the board of directors.

(5)   The information on recruitment and remuneration of senior officers just below the level of board of directors, including appointment or removal of Chief Financial Officer and the Company Secretary.

(6)  Show cause, demand, prosecution notices and penalty notices, which are materially important.

(7)  Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems.

(8)   Any material default in financial obligations to and by the listed entity, or substantial non-payment for goods sold by the listed entity.

(9)   Any issue, which involves possible public or product liability claims of substantial nature, including any judgement or order which, may have passed strictures on the conduct of the listed entity or taken an adverse view regarding another enterprise that may have negative implications on the listed entity.

(10)  Details of any joint venture or collaboration agreement.

(11)  Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property.

(12)    Significant labour problems and their proposed solutions. Any significant development in Human Resources/ Industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme etc.

(13)  Sale of investments, subsidiaries, assets which are material in nature and not in normal course of business.

(14)   Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material.

(15)   Non-compliance of any regulatory, statutory or listing requirements and shareholders service such as nonpayment of dividend, delay in share transfer etc.

(16)  The progress made in putting in place a progressive risk management system and risk management policy and strategy followed by the Company;

(17)   Conformity with corporate governance standards viz., in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions, etc.

 

To focus effectively on the issues and ensure expedient resolution of diverse matters, the Board constitutes a set of Committees with specific terms of reference / scope. The Committees shall operate as empowered agents of the Board as per their Charter / terms of reference.

The NHB Directions mentioned earlier require the setting up of an Audit Committee, Nomination Committee and Risk Management Committee. In compliance with the applicable provisions of the Act, NHB guidelines on Corporate Governance and in order to meet business exigencies, the Company has constituted its Board committees.

The terms of reference, roles and responsibilities of the aforesaid Committees will be further aligned based on the changes in the regulations and business requirements with the approval of Board. SPHM complies with the above requirements of committee constitution and have the following committees of the Board:

  1. Audit Committee
  2. Risk Management Committee
  3. Asset Liability Management Committee (ALCO)
  4. Nomination and Remuneration Committee

The Company has in place the Audit Committee in accordance with the NHB directions on Corporate Governance.

 

Chairperson

The members of the Committee present at the meeting shall choose one amongst them

to act as Chairman.

Composition

Audit committee shall consist of at least three non-executive members of the Board of Directors and will preferably be headed by an Independent Director.

All members of the Audit Committee shall be financially literate and at least one member shall have accounting or related financial management expertise.

The Audit Committee may invite such of the executives, as it considers appropriate (and particularly the head of the accounts function) to be present at the meetings of the Committee, but on occasions it may also meet without the presence of any executives of the Company. The CEO, CFO, Head of Internal Audit and a representative of the Statutory

Auditor may be present as invitees for the meetings of the Audit Committee.

Secretary

The Company Secretary of the Company shall act as the Secretary to the Committee.

Meetings and Quorum

The Audit Committee shall meet at least four times in a calendar year and not more than 120 days shall elapse between two meetings.

The Quorum for the meeting of the Committee shall be as per the Articles of Association

of the Company.

Terms                    of reference

The Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall inter alia, include

  1. oversight of the financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible;

  2. recommendation for appointment, remuneration and terms of appointment of auditors;

  3. approval of payment to statutory auditors for any other services rendered by the statutory auditors;

  4. reviewing, with the management, the annual financial statements and auditor's report

thereon before submission to the board for approval, with particular reference to:

 

 

  1. matters required to be included in the director’s

responsibility statement to be included in the board’s report in terms of clause (c) of sub- section (3) of Section 134 of the Companies Act, 2013;

  1. changes, if any, in accounting policies and practices and reasons for the same;

  2. major accounting entries involving estimates based on the exercise of judgment by management;

  3. significant adjustments made in the financial statements arising out of audit findings;

  4. compliance with all legal requirements relating to financial statements;

  5. disclosure of any related party transactions;

  1. reviewing, with the management, the quarterly financial statements before submission to the board for approval;

  2. reviewing and monitoring the auditor’s independence and performance, and effectiveness of audit process;

  3. approval or any subsequent modification of transactions with related parties;

  4. scrutiny of inter-corporate loans and investments;

  5. valuation of undertakings or assets wherever it is necessary;

  6. evaluation of internal financial controls and risk management systems;

  7. reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems;

  8. reviewing the adequacy of internal audit function, if any, 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;

  9. discussion with internal auditors of any significant findings and follow up there on;

  10. 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;

  11. 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;

  12. to review the functioning of the whistle blower mechanism;

  13. approval of appointment of chief financial officer after assessing the qualifications, experience and background, etc. of the candidate;

  14. The Audit Committee must ensure that an Information System Audit of the internal systems and processes is conducted at least once in two years to assess operational risks faced by the Company.

  15. Carrying out any other function as is mentioned in the terms of reference of the audit committee. The audit committee shall mandatorily review the following information:

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

  2. statement of significant 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 control weaknesses; and

  5. the appointment, removal and terms of remuneration of the chief internal auditor shall be subject to review by the audit committee.

  6. statement of deviations:

The Company has Nomination Committee in accordance with the NHB guidelines on Corporate Governance.

 

Chairperson

The members of the Committee present at the meeting shall choose one amongst them to

act as Chairperson.

Composition

  1. The Committee shall consist of a minimum 3 non-executive directors.

  2. Chairperson of the Company may be appointed as a member of the Committee but shall

not be a Chairman of the Committee.

Secretary

The Company Secretary of the Company shall act as the Secretary to the Committee.

Meetings and Quorum

i. The Committee shall meet as and when necessary.

ii) The Quorum for the meeting of the Committee shall be as per the Articles of Association

of the Company.

Terms                    of reference

  1. Identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall carry out evaluation of every director’s performance.

  2. Formulate the criteria for determining qualifications, positive attributes and independence of a Director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

  3. The committee while formulating the policy as mentioned above shall ensure that

    1. The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;

    2. Relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and

    3. Remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long- term performance objectives appropriate to the working of the company and its goals;

The remuneration policy formulated by the Committee is required under the Act to be disclosed in the Board’s report.

  1. To ensure ‘fit and proper’ status of proposed/ existing Directors.

  2.   To objectively examine the annual manpower plan in relation to the business plan of the company and to examine management recommendations regarding manpower strategy and suggest corrective action, if required.

  3. To finalise the organization structure including top field level functionaries and

direct reportees on a periodic basis or as and when required.

The Company has in place the Risk Management Committee in accordance with NHB directions on Corporate Governance for the purpose of monitoring the risk and to make suitable strategies to control it.

 

Chairperson

The members of the Committee present at the meeting shall choose one amongst them

to act as Chairperson.

Composition

The Committee shall consist of such number of members as may be determined by the

Board.

Secretary

The Company Secretary of the Company shall act as the Secretary to the Committee.

Meetings

and Quorum

The Committee shall meet minimum twice and as and when necessary to review and

monitor the risk associated with business of the Company.

 

 

 

ii) The Quorum for the meeting of the Committee shall be as per the Articles of Association of the Company.

Terms                    of reference

  1. To monitor and review the risk management plan;

  2. To review operational risk (including sub risk for operational risk), information technology risk and integrity risk;

  3. To take strategic actions to mitigate the risk associated with the nature of the business;

  4. To appraise the Board of Directors at regular intervals regarding the process of putting in place a progressive risk management system, risk management policy and strategy;

  5. To do such other acts, deeds and things as may be directed by the Board and required to comply with the applicable laws; and

  6. To lay down procedure to inform Board members about the risk assessment and minimization procedures.

  7. To hold such risk reviews to ensure adequate monitoring as may be felt necessary by the internal as well as external stakeholders and to appraise the Board of the Company on a periodic basis.

As per the guidelines of Asset Liability Management (ALM) system for Housing Finance Companies issued by NHB, vide its circular No.NHB/ND/DRS/Pol-No. 35/2010-11 and as updated from time to time, the Company has in place the Asset Liability Management Committee (ALCO) for the purpose of managing liquidity and interest rate risk.

 

Chairperson

The members of the Committee present at the meeting shall choose one amongst them

to act as Chairperson.

Composition

The Committee shall consist of such number of members as may be determined by the

Board.

Secretary

The Company Secretary of the Company shall act as the Secretary to the Committee.

Meetings and Quorum

The ALCO shall meet at least four times in a calendar year and not more than 120 days shall elapse between two meetings.

 

The Quorum for the meeting of the Committee shall be as per the Articles of Association of the Company.

Terms                    of reference

  1. Responsible for ensuring adherence to the limits set by the Board as well as for deciding the business strategy of the company (on the Assets and Liabilities sides) in line with the company's budget and decided risk management objectives.

  2. Liquidity risk management

  3. Management of market risks

  4. Funding and capital planning

  5. Profit planning and growth projection

  6. Forecasting and analysing 'what if scenario' and preparation of contingency plans.

  7. Review outlook for interest rates and economy at local, regional and international levels.

  8. Develop parameters for the product pricing

  9. Closely monitoring the regulatory ratios & profitability on monthly basis & report to Board members for timely decision making.

  10. Also, the ALCO will ensure that it is aware of the overall financial performance of the Company and, therefore, will keep abreast of significant changes/trends in its financial

results.

 

 

  1. Monitoring mismatches in the maturity profile at regular intervals.

  2. Regularly conducting a stress analysis of it’s liquidity position which should be verified by way of Back Testing in the next ALCO meeting.

  3. Contingency plan for funding arrangements should be examined at each ALCO meeting.

  4. In each ALCO meeting there should be a review of the loans taken from Banks and their servicing. ALCO should examine whether all the loans are standard accounts and instances of overdue, if any, should be thoroughly analysed.

The importance of due diligence of Directors to ascertain suitability for the post by way of qualifications, technical expertise, track record, integrity etc. needs no emphasis for any financial institution. It is proposed to follow the same guidelines mutatis mutandis in case of Housing Finance Companies also. Therefore, the company has put in place an internal supervisory process to carry out due diligence on directors on a continuing basis. In line with the directions of the NHB, the company follows the procedures mentioned below and ensures that the minimum criteria is fulfilled by the persons before they are appointed on the Boards:

 

SPHM will undertake a process of due diligence to determine the suitability of a person for appointment / continuing to hold appointment as a Director on the Board, based upon qualification, expertise, track record, integrity and other ‘fit and proper’ criteria. The Company will obtain necessary information and declaration from the proposed / existing Directors for the purpose in the format given at Annex-1.

b)The process of due diligence will be undertaken by the Company at the time of appointment / renewal of appointment.

c)Based on the information provided in the signed declaration, the Nomination committee shall decide on the acceptance or otherwise of the Director(s), and recommend to the Board accordingly and make any observations as necessary.

e)The Company shall obtain annually as on 31st March a simple declaration from the Directors that the information already provided has not undergone change and where there is any change, requisite details are furnished by them forthwith.

f)The Board of the Company will ensure in public interest that the nominated/ elected Directors execute the deeds of covenants in the format given in Annex-2.

The Company shall report to NHB as per the extant directions issued by NHB from time to time. As per the current directions, the Company shall furnish to the NHB

  • a quarterly statement on change of directors
  • a certificate from the Managing Director fit and proper criteria in selection of the directors has been followed.
  • The statement submitted by the Company for the quarter ending March 31 shall by certified by the auditors.

The statement shall reach the National Housing Bank within 15 days of the close of the respective quarter.

The National Housing Bank, if it deems fit and in public interest, reserves the right to examine the fit and proper criteria of directors of any HFC irrespective of the asset size of such HFC.

(1)The Company shall put up to the Board of Directors, at regular intervals, as may be prescribed by the Board in this regard, the following:

  1. The progress made in putting in place a progressive risk management system and risk management policy and strategy followed by the Company;
  2. Conformity with corporate governance standards viz., in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions, etc.

 

(2)The Company shall also disclose the following in its Annual Financial Statements, with effect from March 31, 2017:

  1. Registration/ licence/ authorisation, by whatever name called, obtained from other financial sector regulators;
  2. Ratings assigned by credit rating agencies and migration of ratings during the year;
  3. Penalties, if any, levied by any regulator;
  4. Information namely, area, country of operation and joint venture partners with regard to Joint ventures and overseas subsidiaries and
  5. Asset-Liability profile, NPAs and movement of NPAs, details of all off-balance sheet exposures, exposure to real estate, exposure to capital market, disclosure of complaints as also securitization/ assignment transactions and other disclosures, as given in Annex-4.
The Company shall rotate the partner/s of the Chartered Accountant firm conducting the audit, every three years so that same partner does not conduct audit of the company continuously for more than a period of three years. However, the partner so rotated will be eligible for conducting the audit of the company after an interval of three years, if the Company, so decides. The Company shall incorporate appropriate terms in the letter of appointment of the firm of auditors and ensure its compliance.
The National Housing Bank may, if it considers it necessary for avoiding any hardship or for any other just and sufficient reason, grant extensions of time to comply with or exempt any housing finance company or class of housing finance companies, from all or any of the provisions of these Directions either generally or for any specified period subject to such conditions as the National Housing Bank may impose. While it is the endeavor of the company to comply with all the directions of the NHB, it shall seek, in writing, from NHB if it wants any exemption from the guidelines.

For Annexure No. 12, Click Here


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