The principles of corporate governance have become conventional wisdom with the realization that it is a necessary tool for the economic health of a company and for society at large. Beyond a company's direct web of relationships, the 'corporate conscience' has now taken centre stage wherein companies are differentiated on the basis of working conditions, environmental strategies and their response to community needs. The Indian regulatory framework has ensured that the interests of stakeholders are well protected, though ultimately, the prime responsibility of good governance lies within an organisation and not outside it. An effective corporate governance framework needs to be flexible to respond to changing market dynamics, yet it must be unwavering as regards its values and ethics. While designing and implementing governance processes, there is a need to ensure an effective mechanism of checks and balances with transparency and accountability as the hallmark.
HDFC Credila Financial Services Private Limited (The Company) has recognized its role as a corporate citizen and aims to adopt the best practices and the highest standards of Corporate Governance through transparency in business ethics, accountability to its customers, stakeholders, government and others. The Company's activities are carried out in accordance with good corporate practices and the Company is constantly striving to better them and adopt the best practices.
The Corporate Governance philosophy has been strengthened with the implementation of the Code of Conduct applicable to the Company and its employees. This code is available on the Company's website.
In order to enable NBFCs to adopt best practices and greater transparency in their operations, RBI has issued Master Circular No. DNBS (PD) CC No.390/03.10.001/2014-15, on July 1, 2014, on Corporate Governance. In pursuance of the aforesaid Guidelines, the Company has framed the following internal Guidelines on Corporate Governance.
i. Size of the Board
As per the Company's Articles of Association, the Board's strength is required to be a minimum of five directors. The Board shall meet a minimum of four times in a year. 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, 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 noncompliance. The current Board of the Company comprises of Eight directors, including three independent directors, three nominee directors and two Whole-time Directors.
ii. Board Membership Criteria All directors are individuals of integrity and courage, with relevant skills and have wide experience to bring judgment to bear on the business of the company.
iii. Board renewal ‐ Tenure of Independent Director
As the Board needs to be regularly refreshed with new expertise, energy and experience, Independent directors are appointed for 5 years, w.e.f. April 16, 2014.
The Company will frame a Board Renewal Policy for Independent Directors to facilitate their independence.
Various committees of the Board are formally established with terms of reference. Criteria for appointment, life span, role and function constitute an important element of the governance process and has been established with clearly agreed reporting procedures and a written scope of authority.
Committees of the Board are usually formed as a means of improving board effectiveness and efficiency in areas where more focused, specialized and technical discussions are required. The Board of Directors is ultimately responsible for the acts of the committees. The following committees are in place.
The Audit Committee shall consist of a minimum of three directors with not less than 2/3rd members being independent directors. 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 finance 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 Finance Director, Head of Internal Audit and a representative of the Statutory Auditor may be present as invitees for the meetings of the Audit Committee. The Audit Committee shall meet at least four times in a year and not more than four months shall elapse between two meetings. The quorum shall be either two members or one third of the members of the Audit Committee whichever is greater, but there should be a minimum of two Independent members present.
Role of the Committee:
- Recommend appointment, re‐appointment or removal of Statutory Auditors and their remuneration, nature and scope of audit.
- Ensure adequacy of internal controls and compliances and recommend remedial measures.
- Oversee financial reporting process and disclosure of financial information.
- Review financial statements before submission to the Board.
- Act as the link between Statutory Auditors, Internal Auditors and Board of Directors.
- Review accounting policies.
- Review significant related party transactions.
- Review findings of internal investigations /fraud / irregularities, etc.
- Monitoring usage of proceeds from an issue on a quarterly basis/annual basis and make appropriate recommendation to the Board.
- Carry out additional functions as contained in the listing agreement or other regulatory requirements applicable to the company or in the terms of reference of the Audit Committee.
- Review adequacy of the Internal Audit function.
The Committee shall consist of such number of members as may be determined by the Board. The Company Secretary of the Company shall act as the Secretary to the Committee.The Committee shall meet quarterly and as and when necessary to review and monitor the risk associated with business of the Company. The quorum shall be at least two Directors.
Chairman of the Committee shall be an Independent Director. The Committee shall consist of a minimum 3 non-executive directors, majority of them being independent. 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.
The Committee shall meet as and when necessary to identify the independent directors to be inducted to the Board, from time to time, on the basis of fit & proper criteria and to evaluate the performance of the Board.
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. The Committee shall meet and as and when necessary to review and monitor the risk associated with business of the Company, to review the Risk Management process in the Company and the working of Risk Management Managers in the different areas of the Company.
The quorum shall be at least two Directors.
The Committee shall consist of three or more directors, out of which at least one director shall be an Independent Director. The Company Secretary of the Company shall act as the Secretary to the Committee. The Committee shall meet once in six months and as and when required to design the framework that will help the Company to execute its responsibility towards the society and to review it periodically and to make report of the same to the Board, on annual basis.
The quorum shall be at least two Directors.
Allotment Committee of the Company shall consist of minimum 3 Directors. Non-Executive Director shall be the Chairman of the Committee Company Secretary will be the Secretary of the Committee. The Committee shall meet as and when required to take decisions related to fund raising of the Company.
i. Size of the Board
Effective Board room performance of Directors is directly related to the time that they can devote. No Director of the Company is holding Directorship, in the Companies, more than prescribed in the Companies Act, 2013 and rules made thereunder, from time to time.
The corporate governance framework of the Company ensures that timely and accurate disclosures are made on all its material information, including the financial position, performance, ownership and governance of the company.
Disclosure includes, but not be limited to, material information on:
i. The financial and operating results of the company.
ii. Company Profile
iii. Corporate Governance Report
- Governance Structure and Policies
- Ownership and shareholder's rights including changes in control
- Detailed information about the Board
- Risk Management Framework
- Existence of Internal Code of Conduct, Business Ethics and Whistle Blower Mechanism
- Particulars of Internal Auditors
- Secretarial Audit
- Commitment to external initiatives
iv. Sustainability Report
- Economic Performance
- Environmental Performance
- Social Performance
- Value Statements
- CSR Initiatives
v. Innovation Strategy / Research &
vi. Intangible Assets Reporting
Information should be prepared and disclosed in accordance with the standards of accounting ‐ financial and non‐financial.
vii. Related Party Transactions (RPTs)
viii. Shareholders Rights
Equity investors have certain rights. An equity share entitles
x. Ethics and Integrity
xi. The Responsibilities of the Board
The corporate governance framework ensures the strategic guidance of the company, the effective monitoring of management by the board, and the board's accountability to the company and the stakeholders. Therefore, the Board members, jointly and severely, assumes following responsibilities:
- Board members act on a fully informed basis, in good faith with due diligence and care, and in the best interest of the company and all its stakeholders.
- Where board decisions may affect different shareholder groups differently, the board shall treat all shareholders fairly.
- The board shall apply high ethical standards. It will take into account the interests of all stakeholders.
- The board shall fulfil certain key functions, including:
- Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans
- Setting performance objectives
- Monitoring and implementing the corporate performance
- Overseeing major capital expenditures, acquisitions and divestitures
- Monitoring the effectiveness of the company's governance practices and making changes as needed.
- Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning.
- Aligning key executive and board remuneration with the long term interests of the company and its stakeholders.
- Ensuring a formal and transparent board nomination and election process.
- Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions.
- Ensuring the integrity of the corporation's accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards.
- Overseeing the process of disclosure and communications.
- The Board should be able to exercise objective independent judgment on corporate affairs.
- The mandate, composition and working procedures of committees of the Board should be well defined and disclosed by the board.
- Board members should commit themselves effectively to their responsibilities.
xii. Connected Lending:
The Company undertakes to comply with the instructions, on connected lending relationships, issued by RBI vide their Circular No. DNBS.PD/CC 94/03.10.042/2006-07 dated May 8, 2007 and updated vide their Master Circular No. DNBS (PD) CC No. 390/03.10.001/2014-15 dated July 1, 2014.