Aiming - Five star

Aiming - Five star

FIVE STAR Business Finance Limited Aiming High ANNUAL REPORT 2015 - 2016 Strong network of 73 Branches across 39 Districts in 4 States Seasoned a...

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FIVE STAR Business Finance Limited

Aiming

High

ANNUAL REPORT 2015 - 2016

Strong network of 73 Branches across 39 Districts in 4 States Seasoned and Niche NBFC providing Small Business Loans and Small Housing Loans to under-banked customers Pioneer in extending collateralized loans in urban, semi-urban and fast -growing rural geographies Strong client understanding, Secured exposures, On the ground presence and Differentiated sourcing are the hallmarks of Five Star

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Five Star Business Finance Limited

BOARD OF DIRECTORS D. Lakshmipathy, Chairman A. Ramanathan Kalpana Iyer Bhama Krishnamurthy R. Anand B. Haribabu L. R. Raviprasad Vikram Vaidyanathan Ling Wei Ong Arjun Saigal (Alternate Director for Ling Wei Ong)

AUDITORS M/s. Brahmayya & Co., Chartered Accountants, 48, Masilamani Road, Balaji Nagar, Royapettah,Chennai - 600 014 CHIEF FINANCIAL OFFICER G. Srikanth SECRETARY V. Nikita BANKERS / FINANCIAL INSTITUTIONS Bank of Baroda Bank of Maharashtra City Union Bank DCB Bank Federal Bank HDFC Bank IDBI Bank Karnataka Bank Karur Vysya Bank Lakshmi Vilas Bank RBL Bank South Indian Bank Tamilnad Mercantile Bank FMO SIDBI Cholamandalam Finance & Investment Company Hinduja Leyland Finance IFMR Capital Finance Mahindra & Mahindra Financial Services MAS Financial Services Sundaram Finance

MENTOR AND SPECIAL ADVISOR V. K. Ranganathan AUDIT & RISK MANAGEMENT COMMITTEE Kalpana Iyer A. Ramanathan Bhama Krishnamurthy R. Anand NOMINATION & REMUNERATION COMMITTEE A. Ramanathan B. Haribabu L. R. Raviprasad BUSINESS & RESOURCE COMMITTEE D. Lakshmipathy B. Haribabu L. R. Raviprasad A. Ramanathan CSR COMMITTEE D. Lakshmipathy Kalpana Iyer Bhama Krishnamurthy R. Anand

TRUSTEE Axis Trustee Services Limited Axis House, 2nd Floor, Wadia International Centre, Pandurang Budhkar Marg, Worli, Mumbai 400 025

ASSET & LIABILITY COMMITTEE D. Lakshmipathy G. Srikanth K. Rangarajan K. Arunkumar

REGISTERED OFFICE 39, Outer Circular Road, Kilpauk Garden Colony, Kilpauk, Chennai - 600 010 Phone : 23460963 CIN - U65991TN1984PLC010844 4

Branch Network Ambattur

Kumbakonam Tanjore

Aminjikarai

Madurai I

Tenkasi

Arani

Madurai II

Theni

Aruppukottai Marthandam Tirunelveli Athur

Nagercoil Tiruppur

Coimbatore I

Namakkal

Tiruvallur

Coimbatore II

Pattukottai

TiruvannamalaiI

Dindigul Pollachi Tiruvarur Erode

Poonamallee Tiruvottiyur

Gobichettipalayam Pudukottai

Trichy

Guduvanchery Rajapalayam Tuticorin Hosur

Ranipet Vaniyambadi

Karaikudi Salem Karur

Vellore

Sivakasi Villupuram

Kovilpatti Sulur

Virudachalam

Krishnagiri Tambaram

Adoni Nandyal Anantapur Narasaraopet Bhimavaram Nellore Chirala Nuzvid Chittoor Ongole Eluru Proddutur Guntur Rajamundry Kadapa Tadepallegudem Kakinada Tenali Kurnool Tirupathi Madanapallee Vijayawada Naidupet

Karim Nagar Sanga Reddy

Bangalore 5

Annual Report 2015 - 16

Five Star Business Finance Limited

Index

MESSAGE FROM CHAIRMAN ..............................................................................07

PROFILE OF DIRECTORS ....................................................................................12

SENIOR MANAGEMENT PROFILE.......................................................................15

KEY DEVELOPMENTS...........................................................................................17

DIRECTORS REPORT............................................................................................23

CORPORATE GOVERNANCE REPORT...............................................................55

MANAGEMENT DISCUSSION ANALYSIS............................................................65

STANDALONE FINANCIAL STATEMENTS...........................................................73

CONSOLIDATED FINANCIAL STATEMENTS.......................................................111

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CHAIRMAN’S MESSAGE 7

Five Star Business Finance Limited

Message from the Chairman & Managing Director

Preamble It gives me great pleasure to formally connect, in my

At the outset, I would like to mention the fact that over

capacity as the Chairman and Managing Director of

the last 32 years, the company has tried and tested

Five Star, with all the stakeholders for the first time

multiple products and we have derived immense

and to share some of my thoughts on the journey

learning out of our successes and failures. Years of

thus far and what lies ahead for us. Five Star is not

such experience have finally made us zero down on

a new generation NBFC; it is a 32 year old company

“Small Business Loans (SBL)” and “Small Housing

with a whole lot of history behind it. This journey over

Loans (SHL)” as the ideal products for the progress

the last 32 years has had its share of excitements,

of the company. Five Star is a pioneer in providing

challenges, highs and lows but I am particularly

collateralized small business loans and small housing

proud of the resilience shown by the company in

loans to borrowers who are not part of the mainstream

overcoming the challenges and continuing to operate

banking. We have also developed a robust business

as a profitable company even to this date.

model which has contributed towards building a quality portfolio on the company’s books. 8

Historically, we have been a fairly conservative

Partner, E&Y on our Board along with our existing

company. I am not a firm believer in hyper aggressive

directors. I am thankful to them for accepting our

growth; I prefer to build a quality portfolio at a gradual

invitation to serve on the Board of Five Star and hope

pace of growth rather than growing very fast and

to leverage their insights and expertise for the benefit

facing portfolio issues at a later point of time. Lending

of all the stakeholders.

business does not involve lending money alone; the success of a lending business is measured by the

While the Board can provide strategic direction and

efficiency of the collections of the moneys lent. This is

inputs, we also need competent staff who can help

the reason for the measured portfolio growth at Five

translate those goals into actual achievements.

Star over the years. I am very confident about the

During this year, we had inducted new members

quality of portfolio that we have boarded and there

into the senior management team at Five Star. We

is no doubt in my mind that we will manage to collect

strengthened the Management team by bringing

every single rupee sitting on the balance sheet of

in a Chief Operating Officer, Mr. K Rangarajan,

our company. This does not mean that we will not be

and Chief Financial Officer, Mr. G Srikanth who will

increasing the pace of growth in the years to come,

manage the assets and liabilities of the balance

however we will not be growing just for the sake of

sheet respectively. They bring with them longstanding

growth.

years of experience and expertise in the banking and financial services sector and I am confident that

The year that went by

the company will benefit from their knowledge and experience.

The financial year 2015-16 has been a landmark year for Five Star. The Company’s portfolio grew by

The year also saw the rating of the company upgraded

over 50% during this year and we also increased the

from BBB minus to BBB by CARE Ratings. This

branch network by over 60% as compared to the

clearly shows the confidence of the rating agency

previous financial year. We strengthened our branch

in the company’s business model and processes.

network in Tamil Nadu and significantly ramped up

An external certification like this brings about added

operations in Andhra Pradesh. We are confident that

confidence in the minds of banks and financial

the operations in these states will continue to grow

institutions and I am confident that this upgrade will

in the coming years and will spruce up our balance

help us reduce our cost of funds and would also open

sheet significantly. We also plan to enter into the

up additional funding opportunities.

other southern states in the coming years so that our aim of being one of the top small business loan and

Significant developments

small housing loan lender in the southern region shall stand fulfilled in the nearby future.

I am extremely excited about few developments that have taken place in the Company in the recent past.

This year also saw our Board getting strengthened

Though these developments ultimately materialized

by the induction of new professionals. These are

during the first quarter of the current financial year

professionals of high regard, extremely competent

(FY 2017), I feel it is only right to highlight them

with years of experience and achievement in their

as part of FY 2016 since the efforts towards these

respective fields and organizations. We now have

developments started during FY 2015-16.

Mr. A Ramanathan, ex CGM, NABARD, Ms. Bhama Krishnamurthy, ex Country Head, SIDBI, Ms. Kalpana Iyer, ex Business Head, Citibank and Mr. R. Anand, 9

Annual Report 2015 - 16

Five Star Business Finance Limited 1. In the month of June 2016, we have concluded a

Credits Limited” to “Five Star Business Finance

capital raise to the tune of about Rs 114 Cr from a fund

Limited” as we felt that the new name would give a

managed by Morgan Stanley Private Equity Asia. It is

better perspective of the company and its business to

a matter of great pride and pleasure to invite a global

all the stakeholders. We have changed our logo and

fund like Morgan Stanley Private Equity Asia to join

website to reflect the values that the company stands

us on our journey as we progress towards becoming

for and to also connect in a better manner with all our

a leading financial services player serving the under-

stakeholders. I hope that these changes would exhibit

banked. Having a world renowned brand like Morgan

the added professionalism that we have managed to

Stanley brings a plethora of benefits, notwithstanding

bring in our thinking.

the fact that we will be able to leverage on their immense expertise of having seen and implemented

Expression of gratitude

best practices in organizations across the globe. I am very confident that this relationship will prove to be a

I would be failing in my duty if I don’t thank some of

win-win for Morgan Stanley and Five Star.

the people who have been associated with us in this long journey of ours.

2. In the month of May 2016, Five-Star Housing Finance Private Limited, fully owned subsidiary of Five



First and foremost, it is my duty to extend

Star was provided with the certificate of registration

my thanks to the founder of Five Star Mr.

to operate as a Housing Finance Company by the

V.K.Ranganathan. Five Star stands a testimony

National Housing Bank. This certification clearly

to his vision and entrepreneurial spirit. He

exhibits the confidence of the regulator in the ability

guided the company through the good and

of the company to take housing to the under-banked

troubled times and continues to mentor the

segment of our population. Our clientele is the right

team with his experience and strategic insights.

target for government schemes like Housing for all and I am sure that Five Star would help make a



Our directors have been a source of support

significant contribution in turning this government

to the company in its good and troubled

vision into reality.

times. Without their support, we would not have been able to come thus far. I hope that

3. During the current financial year, we issued Non-

they would continue to stand as pillars of

Convertible Debentures to FMO, Dutch development

support as we embark further on this journey.

bank which is one of the largest bilateral private sector banks globally, with an investment portfolio of EUR 9.2



I would like to express my thanks to Mr. Anandan,

billion spanning over 85 countries. This transaction

Mr. M K Mohan and Mr. Rishi Navani, who stepped

lends a significantly higher level of recognition to Five

down from the Board of Five Star over the last

Star. As part of their investment process, a detailed

year or so. Their inputs and guidance have helped

due diligence of the company was done by FMO and

shape Five Star into what it is today. It has been

I am happy to inform that the company managed to

a great pleasure having them on our Board and

satisfy all the requirements of a global institution like

I hope to have their guidance even in the future.

FMO. •

Matrix Partners, who invested into the company

4. During the year, we have also undertaken a

in 2014 and 2015, have helped grow the

rebranding exercise of our company. The name of

company to this level, not just through their

the company was changed from “Five Star Business

investment but also through their strategic

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inputs. They were the first private equity player

We are at an exciting phase in the growth journey

to recognize the potential of Five Star when

of Five Star; we will face challenges during the

they picked up a significant minority stake

course of this journey but nothing that we cannot

in the company. We continue to benefit from

surpass by working together. Personally, every year

them in the form of their Board participation

with Five Star has been immensely satisfying; I fully

and hope to have a longstanding association.

understand and acknowledge that we have many more promises to keep and miles to go before we



Our funders, both the banks and other financial

sleep. I sincerely look forward to the support and

institutions, have provided us the much needed

encouragement of all the stakeholders in taking this

liquidity which is the most important requirement

company to greater heights and I say with utmost

of any lending business. As important as

confidence that “together, we shall achieve all this

equity capital is to a company, its value gets

and much more”.

substantially enhanced when the company is able to leverage by getting debt capital from banks and other financial institutions. We have managed to get additional sanctions from existing lenders along with adding new lenders like FMO, Bank of Baroda, IDBI bank, Karnataka bank, South Indian bank, Karur Vysya bank, Lakshmi

Vilas

bank,

and

Cholamandalam

Investment and Finance Company. I am sure that they will perceive the company’s worth in the course of this journey together and will stand by us for many more years to come. Last but not the least, I would like to express my sincere appreciation to all the employees who have been the foundation on which the edifice of Five Star has been built. Without their unstinted dedication and support, all the achievements enumerated above would not have seen the light of the day. I wish them all the very best and look forward to their continued support as we embark on this journey where we shall continue to grow with each other.

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D Lakshmipathy Chairman & Managing Director

Annual Report 2015 - 16

Five Star Business Finance Limited

Board of Directors

Mr. D Lakshmipathy – Chairman & Managing Director

Mr. A. Ramanathan – Independent Director

Mr Lakshmipathy is an Engineering graduate from Madras University. He hails from a business family. Before joining Five-Star he was Executive Director of RKV Finance Limited, a NBFC registered with RBI. On amalgamation of RKV with Five-Star during 2002 he joined the Board of Five-Star as Executive Director. His wide exposure in lending to Small Business Customers (SBL) helped him to develop similar advance portfolio at Five-Star with great success. He is young and dynamic and quick in taking decisions. His hard work with active interest in developing the business transformed the company to the present status of ~Rs.200 Crores assets. He is an Executive Committee member in Finance Companies’ Association (FCA) and is a member of various committees of multiple associations and takes active interest in the development of trade associations. He is responsible for the wider presence of the company in a short span of 7 years from 6 branches in the year 2009 to 73 currently and has helped the company make its presence in Tamil Nadu, Andhra Pradesh, Telengana and Karnataka.

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Mr Ramanathan is retired Chief General Manager from NABARD. His expertise lies in Institutional Development, Organisational Development, Organisational Behaviour, Small Business Development, Training need assessment, Training techniques etc. He has more than 35 years of rich experience in the banking industry.

Ms. Bhama Krishnamurthy – Independent Director She was Country Head and Chief General Manager of SIDBI. She has closely dealt with Multilateral and Bilateral Agencies in close co-ordination with the Government of India. Her areas of specialisation include, inter-alia, handling of Human Resources Development Division covering recruitment, training and promotion aspects. She was also associated with drafting of CSR Policy guidelines for the Bank.

Ms. Kalpana Iyer – Independent Director

Mr. Haribabu – Independent Director

She is a Chartered Accountant and a veteran banker with over 21 years of work experience at Citibank across various functions like business, credit, operations. Presently she is a management consultant based in Mumbai.

Mr Haribabu hails from a business family and continues the family business of brick manufacturing.

Mr R Anand – Independent Director

Mr. Raviprasad – Non Executive Director

Mr Anand is a Chartered Accountant with over 30 years of industry experience. He worked in Sundaram Finance for over 20 years occupying several positions in Finance and Audit. He also worked as a Partner in Ernst & Young LLP covering Tax and Regulatory aspects of various industries like Financial Services, Real Estate, Auto and Auto components, Media and Entertainment. His specializations include NBFC Regulations, Corporate Tax and Foreign Investment and Exchange control regulation and Corporate restructuring. He has also been appointed as a Nonofficial Independent Director in MMTC Limited.

Mr.Raviprasad hails from a business family and continues to carry on the family business. He has been associated with the company for the last 15 years.

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He is also the Founder Trustee of Sri Venkateswara College of Technology, Vadakal Village, Mathur Post, Tamil Nadu. He has been associated with the company for the last 20 years.

Annual Report 2015 - 16

Five Star Business Finance Limited

Mr. Vikram Vaidyanathan – Investor Director

Mr. Arjun Saigal – Alternate Director

Vikram is Managing Director at Matrix Partners. He is an MBA graduate from IIM Bangalore, and interned at Procter & Gamble Singapore. He joined McKinsey & Co. after his MBA and worked across a variety of sectors including mobile media, TV, retail, engineering construction and manufacturing.

Arjun Saigal is an Executive Director of Morgan Stanley. He joined Morgan Stanley in 2012 and focuses on the group’s private equity transactions in India. Prior to joining Morgan Stanley, Arjun was with Baring Private Equity Partners India. He is a graduate of the London School of Economics and received his MBA from Columbia Business School.

Mr. Ling Wei Ong – Investor Director

Mr V K Ranganathan - Mentor & Special Advisor

Ling Wei Ong is an Executive Director of Morgan Stanley. He joined Morgan Stanley in 2005 and monitors the group’s investments including structuring and valuation, finance and compliance. Prior to joining Morgan Stanley, Ling was with Deloitte & Touche in Singapore for over seven years.

Mr V K Ranganathan is founder Chairman of the company. A graduate in arts and post graduate in HR Management, he had nearly 20 years industrial coupled with an extensive knowledge in administration and corporate functioning. He founded Five-Star Business Credits along with few friends with a very small capital but with a vision to build a commercially and socially viable company. He was former Chairman of the South India Hire Purchase Association and continues to be in the executive committee of the Association.

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Management Team

Mr. K Rangarajan – Chief Operating Officer

Mr. G Srikanth – Chief Financial and Information Officer

Rangarajan is a well rounded finance professional with about 14 years of work experience across commercial banking, private equity investment, project finance and advisory. He started his career with HDFC Bank in the Corporate Banking division and then moved on to Standard Chartered Bank in the Mid-market commercial banking division catering to a wide range of fund/ non-fund, trade and treasury requirements of these corporates. He then worked with the South Asia Infrastructure Investment team at International Finance Corporation, World Bank and led a wide array of equity/ debt projects across different economies. Over the last five years, he was with Spark Capital where he spearheaded their advisory/ investment banking initiatives across the financial services and consumer sectors. He has joined Five Star Business Credits in August 2015 as their Chief Operating Officer and would head their business, credit and operations. By qualification, he is a commerce graduate and has done two Masters in Business Administration (one from Sri Sathya Sai Institute of Higher Learning and one from The Indian School of Business) with specialization in Analytical Finance and Leadership.

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Srikanth is a seasoned banking and finance professional with a combined experience of about 14 years across multiple functions. He spent the first decade of his career with Citibank and other Citigroup entities working across various functions like financial planning and analysis, Securitization and Structuring, Treasury, and Operations. He was the Vice President and Head of Business Planning and Analysis for the Consumer portfolio of Citibank when he moved out of the bank to take up the role of Chief Financial Officer at Asirvad Microfinance Private Limited. For over the last 5 years, he has been managing the finance, treasury and technology at Asirvad and has been an integral part of the senior management team. He was instrumental in shepherding the organization when the entire Microfinance industry was hit by the crisis in 2010 and he was also instrumental in Manappuram Finance Limited taking a majority stake in Asirvad. He has joined Five-Star Business Credits in Oct 2015 as the Chief Financial and Information Officer and would head their finance, treasury and technology functions. Srikanth is a commerce graduate and holds an MBA in Finance and General Management from Sri Sathya Sai Institute of Higher Learning (Deemed University) and has been a gold medalist in both the UG and PG courses.

Annual Report 2015 - 16

Five Star Business Finance Limited

Mr. S M Seshathri – Head, Credit & Risk Management

Mr. R M Veerappan – Head, Credit, Risk & Compliance, Five Star Housing Finance.

Seshadri has more than two decades experience

He is a graduate and a professional banker since 1977. He has held various positions in Canara Bank and Can Fin Homes Ltd. He was DGM Can Fin Homes before moving to Five Star. He was associated with formulation of policies relating to housing sector, and was also a member of various committees like Risk Management, Liability Management, etc.

in Business development, understanding customer requirements and offering tailor made products. He has led the company in the areas of Credit Management, operations, Risk Management, Fraud control, property valuation. He has started his career with Five-Star. Seshadri is a Post graduate in Commerce from Madras University. He also holds B.L. Degree from Yogi Vemanna University.

Mr.Manjunath Daler – Head, Technology

Mr. K Arun Kumar – Head, Finance & Accounts

He is an Engineering graduate (specialization in computer science) and a post graduate in Business Administration. He has served in various positions in UTI, Tulip Telecom and Canara Bank. Before joining Five Star, he was VP Information and Technology at Vistaar Finance, an NBFC based out of Bangalore.

Arun has more than 2 decades of experience in the areas of treasury operations, finance and accounting. He possesses a demonstrated record of success in strategic planning and execution, business finance and monitoring, financial risk management, audit and control. He has started his career with Five-Star. Arun is a Post Graduate in Commerce from Annamalai University. He also holds Post Graduate Diploma in Computer Applications.

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KEY DEVELOPMENTS 17

Five Star Business Finance Limited

Business Highlights Steady portfolio & customer growth over the years

Steady disbursal momentum and portfolio growth 14,000

13,194

25,000 12,000

19,812 20,000

10,000

13,151

15,000

7,561

6,000

5,274

7,728

4,000

3,995

5,000

2,983

0

6,660

6,099

10,080 10,000

7,923

8,000

4,363 3,071 2,352

2,000 1,840

FY15

FY14

FY13

AUM (Rs. Lakhs)

0

FY16

#Customers

FY13

FY14

Disbursals (Rs. Lakhs)

FY16

FY15

Growth (Rs. Lakhs)

We are neither passive nor aggressive – Controlled Aggression is our motto

Gradual increase in the quantum of disbursals leading to moderate but sustained growth of the portfolio

Steady expansion of our geographical presence

Robust portfolio quality

70

4 64

60

3

4.00% 3.50%

50

3

3

40

3

3.00% 2

2.50%

2

2.00%

39 30 28 20

1

1.00%

17 10 0

1

1 FY13

1.50%

FY14

Branches

1

FY15

FY16

0

States

0.50% 0.00%

FY13

FY14

GNPA

We aim to be one of the top lenders of Small Business Loans and Small Housing Loans in the southern region

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FY15

FY16

NNPA

Minimal non-performing portfolio resulting in a strong portfolio quality and revenue momentum

Strong financials

14.0

60.0

12.0

47.8

50.0

13.7

9.9

10.0

40.0

7.3

8.0

33.6 30.0

6.0

6.0

25.6 20.0

4.0

18.6

10.0 0.0

2.0

FY13

FY14

FY15

0.0

FY16

FY13

Incomes (Rs.Cr)

FY14

FY15

FY16

PAT (Rs.Cr)

Uptrend in revenues and profitability

Geographical diversification BRANCHES FY 2016

BRANCHES FY 2015 Andhra Pradesh (28%)

Karnataka (3%)

Andhra Pradesh (5%)

Karnataka (2%) Tamil Nadu (70%) Tamil Nadu (92%)

Focus on achieving geographical diversification to minimize concentration risk

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Annual Report 2015 - 16

Five Star Business Finance Limited

Equity Raise During the month of June 2016, Five Star Business Finance Limited (formerly known as Five Star Business Credits Limited) raised capital of about ` 114 Cr from NHPEA Chocolate Holding B.V, a fund managed by Morgan Stanley Private Equity Asia. The transaction culminated after a long diligence process instituted by Morgan Stanley where the financial and legal aspects of the company were thoroughly verified by Ernst & Young and Cyril Amarchand Mangaldas respectively along with a review of the industry prospects by Alvarez and Marsal India Private Limited. As part of the current transaction, NHPEA Chocolate Holding B.V has invested about ` 114 crores of primary equity capital into the Company for a minority stake. The Company’s first institutional investor, Matrix Partners which invested into the Company in two earlier rounds (2014 and 2015) continues to remain a shareholder in the Company. The Asia-Pacific Private Equity Strategy, managed by Morgan Stanley Private Equity Asia (MSPEA), is led by senior professionals with extensive industry relationships, in-depth market knowledge and the ability to apply international investment principles within each local context. D. Lakshmipathy, Chairman and Managing Director of the Company remarked that, “It is a great pleasure to invite a global fund like Morgan Stanley Private Equity Asia to join us on our journey as we progress towards becoming a leading financial services player serving the under-banked”. Arjun Saigal, Co-head of Morgan Stanley Private Equity Asia in India, said, “We are excited to be making this investment and look forward to participating in its next phase of growth. The term ‘five star’ refers to excellence and we believe that this is what this organization continuously strives to achieve. The financial services industry in India offers tremendous

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opportunity and this investment marks Morgan Stanley Private Equity Asia’s second investment in the space in India.” Vikram Vaidyanathan, Managing Director at Matrix Partners and a current Board member at Five Star added that “Five Star has almost doubled its number of branches in the last year and is poised for growth in both small business loans and housing loans. We believe Five Star addresses a very large demand gap with great unit economics. We are privileged to partner with Mr. Lakshmipathy and the management team at Five Star on their journey to creating a very large financial institution”. The current round of capital raise will help scale up the business at the parent and will also help the commencement of lending in the subsidiary. The capital raise provides Five Star with a huge scope to leverage, build its portfolio and earn an attractive return on its assets.

Housing Finance Company License

Five-Star Housing Finance Private Limited (Five-Star Housing), a wholly owned subsidiary of Five-Star Business Finance Limited, has been provided with the certificate of registration by National Housing Bank to function as a Housing Finance Company. Five-Star Housing was incorporated in September 2015 as a private limited company and submitted its application to NHB for obtaining registration as a non-deposit accepting Housing Finance Company. The company went through a diligence process carried out by officials from NHB before the license was issued. Five-Star Business Finance operates in the states of Tamil Nadu, Andhra Pradesh and Karnataka providing collateralized Small Business Loans and Small Housing Loans to borrowers in the urban, semi-urban and fast growing rural geographies. Its portfolio already has about 25% of housing loans lent to eligible borrowers. However, operating as a HFC will provide the benefits of obtaining funds at cheaper cost (as it qualifies as priority sector lending for the lender bank) and for a longer tenure. This will help the company pass on the interest rate benefits to the borrowers and also lend to them for a longer tenure, which will help the company enlarge the pool of eligible borrowers. The HFC shall leverage on the infrastructure of the parent in the initial years before it sets up its independent branches and starts operating as a standalone entity. 21

Five Star Housing shall cater to a similar clientele as the parent entity with the loan ticket ranging between ` 1 - 10 lakhs. The company shall provide loans for home construction, home improvement and home purchase for clients who currently don’t have access to credit from formal channels. This profile of clientele shall help the company reach out to the under-banked and make them a part of the financial ecosystem. Five Star also aims to help such clients reap the benefits of interest subsidy schemes like Pradhan Mantri Awas Yojana, which is highly beneficial to such clients. Hopefully, we will contribute our bit to making the Housing for all scheme a reality by 2022.

Annual Report 2015 - 16

Five Star Business Finance Limited

Rebranding

FIVE STAR Business Finance Limited Changed Name During the year that went by, the management decided to undertake a complete rebranding exercise with a view to project the right image of the company to all its stakeholders. The Management felt that the name “Five Star Business Credits Limited” was not fully understood especially by the potential borrowers of the company. Moreover, since the company was into providing small business loans, it was decided to rename the company to “Five Star Business Finance Limited”. The approval from the shareholders, and Registrar of Companies was obtained in April 2016 post which we got the final approval from the Reserve Bank of India in May 2016. We are confident that the potential borrowers will be able to understand the focus of the company well through the modified name.

Redesigned Logo Along with the modification to the name, the company also undertook changes in its logo and website. The new logo is represented by two colours – Blue and Red. Blue is the colour of trust, honesty and loyalty. It is sincere, reserved and quiet, and doesn’t like to make a fuss or draw attention. From a colour psychology perspective, blue is reliable and responsible. This colour exhibits an inner security and confidence. Red is the colour of energy, passion and action. This colour is warm and positive. Red is energizing. It excites the emotions and motivates us to take action. It signifies a pioneering spirit and leadership qualities, promoting ambition and determination. To the right of the logo, there is a blue square which is surrounded by red triangles at the four corners, arranged in such 22

a way that, together they form a larger square. The small blue square represents Five Star as a company. It stands for trust, honesty and loyalty. The four red triangles are the four pillars of the company that gives it the strength to achieve its true potential. The four pillars are – Employees, Customers, Shareholders and Lenders. We are neither passive nor aggressive. Our DNA is that of “Controlled Aggression”. Our new logo represents the spirit of our existence and growth.

Revamped Website Through our new website, we aim to be lot more closer to our clients and our partners. In line with our good governance practices, we have displayed a lot of information on the website including our financials, credit rating reports, team details, policies, fair practices etc. so that any of our partners and customers can directly have a look at the same. We have also added special pages for prospective employees of our company wherein we aim to share all our current openings and job requirements. Anyone seeking to join the Five Star family would directly be able to apply and write to us. Lastly, we have made it easier for anyone to reach us or any of our branches. All our branches have been tagged in Google Maps and would provide directions till our door step.Our revamped website can be accessed at www.fivestargroup.in

DIRECTORS REPORT 23

Five Star Business Finance Limited

Directors Report Your directors have pleasure in presenting the 32nd Annual report together with the audited accounts of the company for the financial year ended March 31, 2016. 1. Financial Results 1.1. Standalone Financial Highlights

For the Financial Year ended (` in Lakhs)

Particulars

31.03.2016

31.03.2015

4,628

3,299

103

61

Less: Expenditure including depreciation

2,699

1,841

Profit before taxation

2,032

1,520

Provision for taxation

690

528

1,342

992

Operating Income Other Income

Profit after taxation

1.2. Highlights of consolidated financial statements is as under:

31.03.2016

Particulars Revenue from Operations

4,628

Other Income

152

Total Revenue

4,780

Total Expenses

2,703

Profit/ (Loss) before Tax

2,077

Less: Tax Expenses

705

Profit/ (Loss) for the year

1,372

2. State of Company’s Affairs and Future Outlook

Prospects

As you are aware, your company pursued its

The credit business has large potential in India,

financing business by continuing to concentrate on

particularly from self employed persons who are the

Small Business Loans and Small Housing Loans

primary customers of your company. Bulk of your

which have helped to maintain and improve the

company’s customers belongs to this group. Your

financial health and growth of the company.

directors are confident that with the knowledge/ experience gained so far in this segment and with

During the year your company disbursed Rs 13,194

the anticipated additional capital and further funds

lakhs towards providing Small Business Loans and

from institutions, your company will continue to

Small Housing Loans as against Rs. 7,923 lakhs

pursue good and profitable growth in the years to

during the FY ended 2014-15.

come. 24

Your Company has already expanded its operations

Debentures of Rs 10,00,000/- each aggregating

to multiple states and would continue to strive to reach

to Rs 30,00,00,000 on private placement basis

out its operations to more and more under-served

to Nederlandse Financierings -Maatschappij voor

customers and help them access credit on reasonable

Ontwikkelingslanden N.V. (FMO).

terms by opening more number of branches in the semi urban and fast growing rural geographies.

Subsequent to that, your Company’s capital funds stood at Rs. 911,664,224 (including premium) at

RBI Guidelines / Prudential Norms

the end of March 2016 with an additional infusion

Your Company is registered with RBI as a category

of Rs 65,000,000 (including premium). The capital

“B” – Company not accepting deposits from Public.

adequacy ratio as on March 31st 2016 stood at

Your Company has complied with all applicable

39.14% much higher than 15% regulatory minimum.

regulations of the Reserve Bank of India. Further, your Company did not accept any public deposits

8. Disclosure regarding issue of Employee Stock

during the year and did not have any public deposits

Options

outstanding at the end of the financial year.

During the financial year, a new ASOP scheme titled Five Star Associate Stock Option Scheme 2015

3. Change in name of the Company

(ASOP 2015) was introduced. The details of this

During this Financial Year, your Company changed

ASOP scheme are given in the Annexure A to this

its name from “Five Star Business Credits Limited”

report.

to “FIVE-STAR BUSINESS FINANCE LIMITED” in 9. Extract of Annual Return

order to align with the objects of the Company.

As per Section 92(3) of the Companies Act, 2013 4. Change in Nature of Business

and rule 12(1) of the Companies (Management and

There is no change in the nature of Business of your

Administration) Rules, 2014, an extract of annual

Company during the year under review.

return in Form MGT 9 is enclosed and forms part of this report as Annexure B.

5. Dividend Your Directors have decided not to declare any

10. Number of Board Meetings

dividend for the current year and the profit for the year

During the financial year ended 31st March 2016,

will be deployed into the business.

seven (7) Board Meetings were held on 29th April 2015, 30th June 2015, 21st August 2015, 18th September

6. Amounts Transferred to Reserves

2015, 25th November 2015, 26th February 2016 and

The amounts transferred to statutory reserves

12th March 2016 respectively.

and general reserves are Rs. 26,900,000 and Rs. 13,500,000 respectively. 7.Changes in Share Capital During the financial year 2015-16, your Company has made an allotment of 5,00,000 equity shares of Rs.10 each at a premium of Rs 120 per share aggregating to Rs 6,50,00,000 (including premium) on preferential basis to Mr D Lakshmipathy, Promoter & CMD. The Company has also issued 300 Non Convertible 25

Annual Report 2015 - 16

Five Star Business Finance Limited Particulars of the Directors’ attendance to the Board Meetings are given below:

Name

Nature of Directorship

Attendance

Mr. D. Lakshmipathy

Chairman & Managing Director

7

Mr. B. Haribabu

Independent Director

5

Mr. M.K. Mohan*

Independent Director

3

Mr. Ramanathan Annamalai

Independent Director

2

Mr. Vikram Vaidyanathan

Additional Nominee Director

4

Mr. L. R. Raviprasad

Non Executive Director

6

* Resigned during June 2016

11.Committees of the Board Currently, the Board has three (3) Committees: The Audit & Risk Management Committee, Nomination and Remuneration Committee and Corporate Social Responsibility Committee. i) Audit & Risk Management Committee: The Audit & Risk Management Committee comprises of Ms. Kalpana Iyer, Mr. A Ramanathan and Ms. Bhama Krishnamurthy. All the recommendations of the Committee have been adopted by the Board. ii) Nomination and Remuneration Committee: The

Nomination

&

Remuneration

Committee

comprises

of

Mr.

A

Ramanathan,

Mr L R Raviprasad and Mr B Haribabu. iii) Corporate Social Responsibility Committee: The Corporate Social Responsibility Committee comprises of Mr. D Lakshmipathy, Ms. Kalpana Iyer and Ms. Bhama Krishnamurthy.

26

12.

Particulars

of

Loans,

Guarantees

or

During the financial year, your Company has

Investments under Section 186 of Companies

promoted a wholly owned subsidiary, namely, M/s

Act, 2013

Five-Star Housing Finance Private Limited and has

During the year under review, the Company had

agreed to subscribe to 2,50,00,000 equity shares

not granted any loans or guarantees covered under

of Rs 10 each at par in one or more tranches. As

Section 186 of the Companies Act 2013.

on 31st March 2016, your Company has made the following investment, details of which are as under:

Date of Investment

Details of Investee

Amount (in `)

Purpose for which the proceeds from investment is proposed to be utilized by the recipient

Date of Board Resolution

Date of Special Resolution

Expected rate of return

17th October 2015

Five Star Business Credits Limited

Rs 1,00,00,000/Comprising 10,00,000 of equity shares of Rs 10 each.

Working capital requirements and general corporate purposes

21st August 2015

NA

NA

17th October 2015

Five Star Business Credits Limited

Rs 14,00,00,000/comprising of 1,40,00,000 equity shares of Rs 10 each

Working capital requirements and general corporate purposes

21st August 2015

NA

NA

13. Particulars of Contracts or Arrangements

15.

with Related parties

Absorption & Foreign Exchange Earnings/Outgo

During the financial year, the Company has entered

(i) Conservation of Energy & Technological

into contracts or Arrangement with Related Parties

Absorption

as per Section 188 of the Companies Act, 2013

Since your Company does not own any manufacturing

and the Rules framed thereunder as enclosed as

facility, the requirement of disclosure of particulars

Annexure – C.

relating to conservation of energy and technology

Conservation

of

Energy,

Technological

absorption in terms of Section 134 of the Companies 14. Material Changes Affecting the Financial

Act, 2013 and the Rules framed thereunder is not

Position of the Company.

applicable.

There are no material changes and commitments

(ii) Foreign Exchange Earnings/Outgo

between 31st March 2016 and the date of this report

Your Company does not have any foreign currency

having an adverse bearing on the financial position

earnings or expenditure during the financial year

of the Company.

ended 31st March 2016.

27

Annual Report 2015 - 16

Five Star Business Finance Limited 16. Details of Subsidiary

the risk management framework continues to evolve in line with the emerging risk perceptions.

Five Star Housing Finance Private Limited is a wholly owned subsidiary of the Company incorporated on

ALCO reviews the lending policy, interest rate

28th September 2015. The Company had made

policy and guides the team towards prudent lending

necessary application to the National Housing Bank,

practices. The Company has given high importance

and as on the date of this report, the Company has

to prudent lending practices and has put in place

obtained the certificate of registration to function as a

suitable measures for risk mitigation.

Housing Finance Company. 18. Human Resource Development In accordance with the provisions of section 129(3) of the Companies Act 2013, the Consolidated

The customer acquisition, credit delivery, collection

Financial Statements drawn up in accordance with

process and manpower strength of Non-Banking

the applicable accounting standards form part of the

Financial Companies operating in similar environment

Annual Report. A seperate statement containing the

were studied to align our staff strength after duly

salient features of the financial statements of the

factoring for the differences in the business models

subsidiary in form AOC 1 forms part of the Annual

of other entities. Accordingly, the staff strength at the

Report.

regions and branches were streamlined, keeping in mind our acquisition process and market segment,

17. Risk Management Policy Successful

mortgage

adding people where required.

lending

calls

for

timely

This is expected to help your company to focus on

identification, careful assessment and effective

right level of productivity and growth. Apart from

management of the credit, operational, market

imparting advanced training to all front line sales and

(interest-rate and liquidity) and reputation risks. The

marketing, credit and other staff which included the

Company has adopted efficient risk-management

KYC and FPC training, employees were nominated

policies, systems and processes that seek to strike

to various training programs.

an appropriate balance between risk and returns. Your

company

has

also

benchmarked

its

The Company has also introduced appropriate

compensation levels with the market, thus being in a

risk-management measures, such as accessing

position to attract and retain necessary talent, which

the applicant’s credit history with credit information

is essential for growing the business in the years to

bureaus,

come.

field

investigation

of

the

applicant’s

credentials, multiple verification layers, adoption of prudent loan/value ratio and analysis and adoption of

19. Details of Directors and Key Managerial

a conservative debt-service capacity of the borrowers,

Personnel

thorough in-house scrutiny of legal documents, monitoring the end-use of approved loans and lending

Mr Rishi Navani, Nominee Director on behalf of Matrix

against approved properties.

Partners India Investment Holdings II, LLC resigned from the Board with effect 5th August 2015 and

Asset Liability Committee (ALCO) ensures that the

Mr. M Anandan, Chairman resigned from the Board

liquidity and interest-rate risks are contained within

with effect from 21st August 2015.

the limits laid down by the Company. Being dynamic, 28

Your Directors express their deep appreciation for the

Mr L R Raviprasad, Non Executive Director, retires

services rendered by Mr M Anandan during his tenure

by rotation at the ensuing 32nd

as Chairman. They also thanked Mr M Anandan for

Meeting and being eligible has offered himself for re-

providing his valuable insights and guidance to the

appointment.

Annual General

Company during his tenure as Chairman which has helped the company achieve the good performance

20. Details of Significant & Material Orders passed

over the years.

by the Regulators or courts or tribunal

Your Directors also express their deep appreciation

During the financial year, there are no significant and

for the services rendered by Mr Rishi Navani during

material orders passed by the regulators or Courts

his tenure as Director.

or Tribunals impacting the going concern status and your company’s operations in future.

Mr Vikram Vaidyanathan was appointed as Nominee (additional)

Director

of

Matrix

Partners

India

Investment Holdings II, LLC with effect from 21st

21. Details of Adequacy of Internal Financial Controls

August 2015 and holds office upto the date of the ensuing 32nd Annual General Meeting and being

The Company has a well-established and adequate

eligible has offered himself for reappointment.

internal financial control and risk management framework, with appropriate policies and procedures,

The Company has received a notice from a member

to ensure the highest standards of integrity and

pursuant to Section 161 of the Companies Act 2013

transparency in its operations and a strong corporate

proposing his candidature for Nominee Director, liable

governance structure, while maintaining excellence

to retire by rotation.

in services to all its stakeholders. Appropriate controls are in place to ensure: (a) the orderly and

Mr Ramanathan Annamalai who was appointed as

efficient conduct of business, including adherence to

an additional Independent director by the Board on

policies, (b) safeguarding of assets, (c) prevention

26th February 2016 was appointed as Independent

and detection of frauds / errors, (d) accuracy and

Director of the Company at the Extra Ordinary

completeness of the accounting records and (e)

General Meeting held on 12th April 2016.

timely preparation of reliable financial information.

Ms Kalpana Iyer and Ms Bhama Krishnamurthy were

This is further strengthened by the Internal Audit done

appointed as Independent (additional) Directors with

concurrently by M/s B.B. Naidu and Co., Chartered

effect from 12th April 2016 and holds office upto the

Accountants and Internal Auditors of the Company.

date of the ensuing 32nd Annual General Meeting and being eligible have offered themselves for

Besides, the Company has an Audit & Risk

reappointment.

Management Committee, which regularly reviews and monitors systems, internal controls, risk management

The Company has received a notice from a member

measures,

pursuant to Section 161 of the Companies Act

management and operations of the Company and the

2013 proposing their candidature for Independent

reports on findings and recommendations presented

Directors.

by the Internal Auditors.

29

accounting

procedures,

financial

Annual Report 2015 - 16

Five Star Business Finance Limited The

Audit

&

Risk

Management

Committee,

Secetarial Auditors

Independent Directors and the Board after review are satisfied with the internal financial controls and risk

Mr. S Sandeep from M/s S Sandeep & Associates,

management systems put in place by the Company.

Practicing Company Secretaries was appointed to conduct the secretarial audit of the Company

22. Deposits

for the financial year 2015-16, as required under Section 204 of the Companies Act, 2013 and rules

Your Company has not accepted any deposits from

made thereunder. The secretarial audit report for the

public.

financial year ended 31st March 2016 forms part of Annual report as an Annexure D to Board’s Report.

23. Declaration from Independent Directors 25. Corporate Social Responsibility Policy (CSR) The Company has received declarations from all the Independent Directors to the effect that they meet the

Pursuant to Section 135 of the Companies Act,

criteria of independence as provided in sub-section

2013 read with the Companies (Corporate Social

(6) of Section 149 of the Companies Act, 2013.

Responsibility Policy) Rules, 2014, your Company has adopted a Policy on CSR and the Policy has

24. Auditors

been placed in the website of the Company. A report on CSR is attached as Annexure E to this Report.

Statuory Auditors 26. Formal Annual Evaluation Your Company’s Statutory Auditors, M/s. Brahmayya & Co., Chartered Accountants, who retire at the

As per the provisions of the Companies Act, 2013,

ensuing Annual General Meeting, are eligible for

the Board has carried out an annual performance

reappointment. They have confirmed their eligibility

evaluation of its own performance, the directors

under Section 141 of the Companies Act, 2013 and

individually as well as the evaluation of the working of

the Rules framed thereunder for reappointment as

its Committees. A structured exercise was carried out

Statutory Auditors of the Company.

based on the criteria for evaluation forming part of the Directors Appointment, Remuneration & Evaluation Policy,

Internal Auditors

including

framework

for

performance

evaluation of Directors, Board & Committees, familiarisation Programme for Independent Directors

To carry out internal audit of all its operations, your

Criteria for Evaluation and the inputs received from

Company has engaged M/s B.B. Naidu & Co.,

the Directors, covering various aspects of the Board’s

Chartered Accountants, as its Internal Auditors.

functioning such as adequacy of the composition of

The internal audit covers the Corporate Office

the Board and its committee, attendance at meetings,

and branches of the Company. The Audit & Risk

Board culture, duties of directors, and governance.

Management Committee assures the internal audit

The aforesaid policy is attached as Annexure F to this

functions, as well as the adequacy and effectiveness

report.

of the internal systems and controls.

30

A separate exercise was carried out to evaluate

Your Directors further state that during the year under

the performance of individual Directors including

review, no complaints have been received pursuant

the Chairman of the Board, who were evaluated

to the Sexual Harassment of Women at Workplace

on parameters such as level of engagement

(Prevention, Prohibition and Redressal) Act, 2013.

and

contribution,

independence

of

judgement,

safeguarding the interest of the Company and its

30.

Particulars

stakeholders etc. The performance evaluation of the

Disclosures

of

Employees

and

Related

Independent Directors was carried out by the entire Board. The performance evaluation of the Chairman

In terms of the provisions of Section 197(12) of the

and the Non Independent Directors was carried out

Act read with Rules 5(2) and 5(3) of the Companies

by the Independent Directors. The Directors have

(Appointment and Remuneration of Managerial

expressed their satisfaction with the evaluation

Personnel) Rules, 2014, a statement showing the

process.

names and other particulars of the employees drawing remuneration in excess of the limits set out

27. Whistle Blower Policy & Vigil Mechanism

in the said rules are provided in the Annual Report. Disclosures pertaining to remuneration and other

Your Company has established a Vigil Mechanism

details as required under Section 197(12) of the Act

& has adopted a Whistle Blower Policy for directors

read with Rule 5(1) of the Companies (Appointment

and employees to report their genuine concerns

and

to the Chairman of the Audit & Risk Management

Rules, 2014 are provided in the Annual Report as

Committee. The Whistle Blower Policy has been

Annexure H.

Remuneration

of

Managerial

Personnel)

formulated with a view to provide a mechanism for employees and directors to approach the Audit & Risk

31. Directors Responsibility Statement

Management Committee of the Company. To the best of their knowledge and belief, and 28. Corporate Governance Report

according to the information and explanations obtained by them, your Directors confirm the following

Report on Corporate Governance is enclosed and

in terms of Section 134 of the Companies Act, 2013

form part of this report as Annexure G.

and the Rules made thereunder:-

29. Disclosure under Sexual Harasement of

(a) In the preparation of the annual accounts, the

Women at Workplace (Prevention, Prohibition &

applicable accounting standards have been followed

Redressal) Act, 2013

along with proper explanation relating to material departures;

The

Company

has

in

place

an

Anti-Sexual

Harassment Policy named “Policy Against Sexual

(b) The directors have selected such accounting

Harassment” in line with the requirements of The

policies and applied them consistently and made

Sexual Harassment of Women at the Workplace

judgments and estimates that are reasonable and

(Prevention, Prohibition & Redressal) Act, 2013. An

prudent so as to give a true and fair view of the state

Internal Complaints Committees (ICC) has been set

of affairs of the company at the end of the financial

up to redress complaints received regarding sexual

year and of the profit of the company for that period;

harassment.

31

Annual Report 2015 - 16

Five Star Business Finance Limited (c) The directors have taken proper and sufficient

(f) The director have devised proper systems to ensure

care for the maintenance of adequate accounting

compliance with the provisions of all applicable laws

records in accordance with the provisions of this Act

and that such systems were adequate and operating

for safeguarding the assets of the company and for

effectively.

preventing and detecting fraud and other irregularities; Acknowledgement (d) The directors have prepared the annual accounts on a going concern basis;

Your Directors wish to thank the customers, bankers, shareholders, service agencies and other

(e) The directors have laid down internal financial

stakeholders for their support. The directors also

controls,

thank the employees for their contribution during the

which

are

adequate

and

operating

effectively; and

financial year under review.

Chennai 24/05/2016

For and on behalf of the Board of Directors Mr. D. Lakshmipathy Chairman & Managing Director DIN: 01723269

32

Annexure - A FIVE STAR ASSOCIATE STOCK OPTION SCHEME, 2015 The decision to introduce FIVE STAR Associate Stock Option Scheme, 2015 (hereinafter called “FIVE STAR ASOP, 2015” or “The Scheme”) was taken by the Board of Directors at the meeting held on 18th September 2015 and was approved by the shareholders of the Company at the Extra Ordinary General Meeting held on 12th April 2016. Pursuant to Rule 12(9) of Companies (Share Capital and Debentures) Rules, 2014, the details of the Five Star Associate Stock Option Scheme, 2015 as on 31st March 2016 are :1. Options Granted:

5,63,000

2. Options Vested:

NIL

3. Options Exercised:

NIL

4. Options Lapsed:

NIL

5. Variation of terms of options: There were no variations of terms of options during the financial year 2015-16. 6. Money realized by exercise of options:

Rs. NIL.

7. Employee wise details of options granted to :(i) Key managerial personnel: Mr G Srikanth – Chief Financial Officer (ii) Any other employee who receives a grant of options in any one year of option amounting to 5 per cent or more of options granted during that year : Nil (iii) Identified employees who were granted option, during any one year, equal to or exceeding one percent of issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant : Mr. Rangarajan Krishnan, Chief Operating Officer.

33

Annual Report 2015 - 16

Five Star Business Finance Limited Annexure - B Form No. MGT-9 Extract of Annual Return as on the financial year ended on 31/03/2016 [Pursuant to section 92(3) of the Companies Act, 2013 and rule 12(1) of the Companies Management and Administration) Rules, 2014] I. REGISTRATION AND OTHER DETAILS: (i) CIN : U65991TN1984PLC010844 (ii) Registration Date : 07/05/1984 (iii) Name of the Company: FIVE-STAR BUSINESS CREDITS LIMITED (iv) Category / Sub-Category of the Company: Company Limited by Shares (v) Address of the Registered Office and contact details: 39, Outer Circular Road, Kilpauk Garden Colony, Kilpauk, Chennai - 600 010, Tamil Nadu, India (vii) Name, Address and Contact details of Registrar and Transfer Agent, if any: NA II. PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY: All the business activities contributing 10 % or more of the total turnover of the company shall be stated:-

NIC Code of the Product/ service

Name and Description of main products / services Small Business Loans, Home Loans & Mortgage Loans

% to total turnover of the company

64920

100%

III. PARTICULARS OF HOLDING, SUBSIDIARY AND ASSOCIATE COMPANIES: Name and Address of the Company Five-Star Housing Finance Private Limited

Holding/ Subsidiary/ Associate

CIN/ GLN

% of Shares Held

Application Section

U74900TN2015PTC102366 Subsidiary 100%

34

2(87)

IV SHARE HOLDING PATTERN (Equity Share Capital Breakup as percentage of Total Equity) i) Category-wise Share Holding:

Category of

No. of shares held at the

No. of shares held at the

% of

Shareholders

begining of the year

end of the year

Change

Demat

Physical

Total

% of Demat Physical Total Shares

Total

during % of Total the Year Shares

(A) Promoters (1) Indian (a) Individual/HUF

- 44,47,560 44,47,560 43.60

- 50,44,460 50,44,460 47.14

(b) Central Govt

-

-

-

-

-

-

-

-

3.54 -

(c) State Govt (s)

-

-

-

-

-

-

-

-

-

(d) Bodies Corporate

-

-

-

-

-

-

-

-

-

(e) Banks / FI

-

-

-

-

-

-

-

-

-

(f) Any Other

-

-

- - -

-

- - -

Sub-Total (A) (1)

-

44,47,560

44,47,560

43.60

-

50,44,460

50,44,460

47.14

3.54

(2) Foreign (a) NRIs - Individuals

-

-

-

-

-

-

-

-

-

(b) Other – Individuals -

-

-

-

-

-

-

-

-

(d) Bodies Corporate

-

-

-

-

-

-

-

-

-

(e) Banks / FI

-

-

-

-

-

-

-

-

-

(f) Any Other

-

-

- - -

-

- - -

Sub-Total (A) (2)

-

-

-

-

-

-

-

-

-

-

44,47,560

44,47,560

43.60

-

50,44,460

50,44,460

47.14

3.54

(a) Mutual Funds

-

-

-

-

-

-

-

-

-

(b) Banks/FI

-

-

- - -

-

- - -

(c) Central Govt

-

-

-

-

-

-

-

-

-

(d) State Govt (s)

-

-

-

-

-

-

-

-

-

Total Shareholding of Promoter (A) = (A) (1) + (A) (2) (B) Public Shareholding (1) Institutions

(e) Venture Capital funds -

-

- - -

-

- - -

(f) Insurance Companies -

-

-

-

-

(g) FIIs

-

-

- - -

-

- - -

Capital Funds

-

-

- - -

-

- - -

(i) Others (Specify)

-

-

-

-

-

-

-

-

-

Sub-Total (A) (1)

-

-

-

-

-

-

-

-

-

-

-

-

-

(h) Foreign Venture

35

Annual Report 2015 - 16

Five Star Business Finance Limited Category of Shareholders

No. of shares held at the begining of the year Demat

Physical

Total

2,10,000

2,10,000

No. of shares held at the end of the year

% of Demat Physical Total Shares

Total

% of Total Shares

% of Change during the Year

(2) Non- Institutions (a) Bodies Corporate i. Indian

-

2.06

-

325,510

325,510

3.04

0.98

ii.Overseas

- 39,40,240 39,40,240 38.63

- 39,40,240 39,40,240 36.82 -1.81

-

5,04,360

5,04,360

4.95

-

5,01,900

5,01,900

4.69

-0.26

excess of Rs 1 lakh

-

10,97,840

10,97,840

10.76

-

887,890

887,890

8.30

-2.46

(c) Others (Specify)

-

-

-

-

-

-

-

-

-

Sub-Total (B) (2)

-

57,52,440

57,52,440

56.40

-

57,52,440

57,52,440

56.40

-

-

57,52,440

57,52,440

56.40

-

57,52,440

57,52,440

56.40

-

i. Individual shareholders holding nominal share capital up to Rs. 1 lakh ii. Individual shareholders holding nominal share capital in

Total Shareholding of Promoter (B) = (B) (1) + (B) (2) C.Shares held by custodian for GDRs & ADRs - Grand Total(A+B+C)

-

- - -

- 1,02,00,000 1,02,00,000 100.00

-

- - -

- 1,07,00,000 1,07,00,000 100.00

-

(ii) Shareholding of Promoters:

S. No.

Particulars

Shareholding at the

Shareholding at the

% of

beginning of the year

end of the year

Change

No. of

% of

Shares

Shares

% of Shares Pledged/ encumbered

No. of

% of

Shares

Shares

% of Shares during the Year Pledged/ encumbered

1.

Lakshmipathy. D 19,37,830

19.00

-

25,18,730

23.54

- 4.54

2.

Hema. L

21,66,760

21.24

-

21,82,760

20.40

- -0.84

3.

Deenathayalan. R 1,63,200

1.60

-

1,63,200

1.53

- -0.07

4.

Varalakshmi. D

1.57

-

1,59,770

1.49

- -0.08

5.

Sritha. L

-

20,000

0.19

- 0.00



1,59,770 20,000 44,47,560

0.19 43.60

- 50,44,460 47.14

36

-

3.54

Annual Report 2015 - 16

(iii) Change in Promoters’ Shareholding (please specify, if there is no change):

Particulars

Shareholding at the beginning of the year % of total No. of Shares of the Shares Company

Shareholding at the end of the year No. of % of total Shares of the Shares Company

Lakshmipathy. D 1. At the beginning of the year

19,37,830

19.00

-

-

2. Date wise increase/decrease 01.06.2015 - Transfer

750

0.01

19,38,580

19.01

18.09.2015 - Transfer

75,650

0.74

20,14,230

19.75

3,50,000

3.32

23,64,230

22.41

4,500

0.04

23,68,730

22.45

1,50,000

1.40

25,18,730

23.54

21,66,760

21.24

-

-

16,000

0.16

21,82,760

20.40

29.09.2015 - Preferential Allotment 06.11.2015 – Transfer 30.11.2015 - Preferential Allotment L. Hema 1. At the beginning of the year 2. Date wise increase/decrease 21.04.2015 – Transfer

(iv) Shareholding Pattern of top ten Shareholders (other than Directors, Promoters and Holders of GDRs and ADRs):

Sl. No.

For Each of the Top 10 Shareholders

1.

Matrix Partners India Investment



Holdings II, LLC

Shareholding at the beginning of the year No. of % of total Shares of the Shares Company

39,40,240

36.82

Shareholding at the end of the year % of total No. of Shares of the Shares Company

39,40,240

36.82

2.

Atmaram Builders (P) Ltd.

2,10,000

1.96

3,25,510

3.04

3.

R. Jayachandran

1,59,780

1.49

1,59,780

1.49

4.

L.R. Deepak Krishna

75,650

0.71

-

-

5.

L. Janarthanan

66,460

0.62

66,460

0.62

6.

R. Suguna

50,850

0.48

50,850

0.48

7.

V.K. Ranganathan

50,000

0.47

50,000

0.47

8.

V. Mahesh Raman

50,000

0.47

50,000

0.47

9.

J. Bharathi

45,000

0.42

45,000

0.42

10.

L.R. Venkatesh

38,850

0.36

-

-

11

J. Sujatha

37,050

0.35

37,050

0.35

12.

N. Ramkumar

22,500

0.21

22,500

0.21

37

Annual Report 2015 - 16

Five Star Business Finance Limited (v) Shareholding of Directors and Key Managerial Personnel Shareholding at the end of the years

Shareholding at the beginning of the years For Each of the Top 10

No. of

Shareholders

Shares

% of total Shares of the Company

No. of

% of total Shares of the Company

Shares

Directors 1,937,830

19.96

2,518,780

23.54

B. Haribabu

D. Lakshmipathy

162,500

1.81

162,500

1.52

L.R. Ravi Prasad

127,200

1.41

159,780

1.49

Vikram Vaidyanathan +

-

-

-

-

A. Ramanathan +

-

-

-

-

Kalpana Iyer #

-

-

-

-

Bhama Krishnamoorthy #

-

-

-

-

Rishi Navani *

-

-

-

-

5800

0.06

5800

0.05

M. Anandan*

M.K. Mohan @

-

-

-

-

G. Srikanth, CFO

-

-

200

0.00

+ Appointed during the year

# Appointed during April 2016

* Resigned during the year

@ Resigned during June 2016

V. INDEBTEDNESS: Indebtedness of the Company including interest outstanding / accrued but not due for payment Particulars

Secured Loans

Unsecured Loans

excluding deposits

Deposits

Total Indebtedness

Indebtedness at the beginning of the financial year i) Principal Amount

780,981,136

94,751,000

-

875,732,136

-

-

-

-

10,678,865

1,642,124

-

12,320,989

791,660,001

96,393,124

-

888,053,125

1,151,000

-

851,151,000

ii) Interest due but not paid iii) Interest accrued but not due Total (i + ii + iii)

Change in Indebtedness during the financial year Addition

850,000,000

Reduction

367,649,906 71,672,000

- 439,321,906

Net Change

482,350,094

(70,521,000)

-

411,829,094

1,263,331,230

24,230,000

-

1,287,561,230

-

-

-

-

17,563,432

565,047

-

18,128,479

1,280,894,662

24,795,047

-

1,305,689,709

Indebtedness at the end of the financial year i) Principal Amount ii) Interest due but not paid iii) Interest accrued but not due Total (i + ii + iii)

38

VI. REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL: A. Remuneration to Managing Director, Whole-time Directors and/or Manager: Name of MD/WTD/Manager

S. No.

Particulars of Remuneration

Total Amount

1

Gross Salary



(a). Salary as per provisions contained in section 17(1)



of the Income-tax Act, 1961

6,021,600

6,021,600



(b). Value of perquisites u/s 17(2) Income-tax Act, 1961

-

-



(c). Profits in lieu of salary under section 17(3) Income-tax Act, 1961

-

-

2

Stock Option

-

-

3

Sweat Equity

-

-

4

Commission - as % of profit

-

-

5

Others, please specify

-

-



Total (A)

6,021,600

6,021,600



Ceiling as per the Act (5% of Net Profit)

10,651,464

10,651,464

Mr. D. Lakshmipathy, CMD

B. Remuneration to other Directors S. No.

Particulars of Remuneration

1

Independent Directors



Fee for attending board /



committee Meetings

Commission

Others, please specify



Total (1)

2

Other Non-Executive Directors



Fee for attending board /



committee Meetings

Name of Directors

Total Amount

M.K. Mohan

B. Haribabu

A. Ramanathan

35,000

75,000

20,000

150,000 150,000

-

130,000 300,000

-

-

-

-

185,000

225,000

20,000

430,000

M. Anandan * L.R. Raviprasad -

120,000

Commission

35,000

- 150,000

85,000

-

150,000



Others, please specify

-

-

-

-



Total (2)

35,000

235,000

-

270,000



Total (B)=(1) + (2)

220,000

460,000

20,000

700,000



Total Managerial



Remuneration (A) + (B)

-

-

-

6,721,600



Overall Ceiling as per the Act



(11% of Net Profit)

-

-

- 23,433,221

* Resigned during the year

39

Annual Report 2015 - 16

Five Star Business Finance Limited C. Remuneration to key managerial personnel other than MD/MANAGER/WTD: S. No.

Particulars of Remuneration

1

Gross Salary



(a) Salary as per provisions contained in



section 17(1) of the Income-tax Act, 1961



(b) Value of perquisites u/s 17(2)



Income-tax Act, 1961



(c) Profits in lieu of salary under section

2

G. Srikanth, Chief Financial Officer*

V. Nikita Company Secretary#

Total Amount

1,877,872

139,500

2,017,372

-

-

-

17(3) Income-tax Act, 1961

-

-

-

Stock Option

-

-

-

3

Sweat Equity

-

-

-

4

Commission - as % of profit

-

-

-

5

Others, please specify



Total (A)

-

-

-

1,877,872

139,500

2,017,372

* Appointed during October 2015 # Appointed during June 2015

VII. PENALTIES / PUNISHMENT/ COMPOUNDING OF OFFENCES: A. Remuneration to Managing Director, Whole-time Directors and/or Manager: Type

Section Brief of the Description Companies Act

Details of Penalty Authority / Punishment / [RD/NCLT/COURT] Compounding fees imposed

A. COMPANY Penality

NIL

Punishment Compunding B. DIRECTORS Penality

NIL

Punishment Compunding C. OTHER OFFICERS IN DEFAULT Penality

NIL

Punishment Compunding

40

Appeal made, if any (give details)

Annexure - C Form No. AOC - 2 (Pursuant to clause (h) of sub-section (3) of Section 134 of the Act and Rule 8 (2) of the Companies (Accounts) Rules, 2014) Form for disclosure of particulars of contracts/arrangements entered into by the company with related parties referred to in sub-section (1) of section 188 of the Companies Act, 2013 including certain arms length transactions under third proviso thereto. 1. Details of contracts or arrangements or transactions not at arm’s length basis a) Name of the related party and nature of relationship: D Lakshmipathy b) Nature of contracts/ arrangements/ transactions: Lease Rentals c) Duration of the contracts/ arrangements/ transactions: 36 months d) Salient terms of the contracts or arrangements or transactions including the value, if any: 1. To use the premises only as an office for carrying on the business of the Company and not to put it to any other use. 2. To carry out the internal alterations, partitions and other alterations which may be required for using the premises as an office, at the expenses of the company. 3. Not to sub-let the premises to any one. e) Justification for entering into such contracts/ arrangements/ transactions: The premises is owned by the Chairman & Managing Director and it is suitable for smooth fuctioning of the Registered and Head Office of the Company. f) Date of approval by the Board: 2nd August 2013 g) Amount paid as advance, if any: Rs. 4,00,000 h). Date on which the special resolutions was passed in general meeting as required under the first proviso to section 188: Not applicable 2. Details of material contracts or arrangement or transactions at arm’s length basis a) Name of the related party and nature of relationship: NA b) Nature of contracts/ arrangements/ transactions: NA c) Duration of the contracts/ arrangements/ transactions : NA d) Salient terms of the contracts or arrangements or transactions including the value, if any, : NA e) Justification for entering into such contracts/ arrangements/ transactions : NA f) Date of approval by the Board : NA g) Amount paid as advance , if any : NA

Mr. D. Lakshmipathy Chairman & Managing Director

Chennai

DIN No: 01723269

24/05/2016 41

Annual Report 2015 - 16

Five Star Business Finance Limited Annexure - D Form No. MR-3 SECRETARIAL AUDIT REPORT FOR THE FINANCIAL YEAR ENDED 31st March 2016 [Pursuant to section 204(1) of the Companies Act, 2013 and rule No.9 of the Companies (Appointment and Remuneration Personnel) Rules, 2014] To, The Members, FIVE-STAR BUSINESS FINANCE LIMITED 39, Outer Circular Road, Kilpauk Garden Colony Chennai - 600010 Tamil Nadu, India. We have conducted the secretarial audit of the compliance of applicable statutory provisions and the adherence to good corporate practices of M/s. FIVE-STAR BUSINESS FINANCE LIMITED (Formerly known as FIVE STAR BUSINESS CREDITS LIMITED) - CIN: U65991TN1984PLC010844 (hereinafter called “the Company”). The Secretarial Audit was conducted in a manner that provided us a reasonable basis for evaluating the corporate conducts/statutory compliances and expressing our opinion thereon. Based on our verification of the Company’s books, papers, minute books, forms and returns filed and other records maintained by the company and also the information provided by the Company, its officers, agents and authorized representatives during the conduct of secretarial audit, We hereby report that in our opinion, the company has, during the audit period covering the financial year ended on 31st March 2016, has complied with the statutory provisions listed hereunder and also that the Company has proper Board-processes and compliance-mechanism in place to the extent, in the manner and subject to the reporting made hereinafter: We have examined the books, papers, minute books, forms and returns filed and other records maintained by the Company for the financial year ended on 31st March 2016 according to the provisions of: (i) The Companies Act, 2013 (the Act) and the rules made thereunder; (ii) The provisions of Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder as applicable to the Company; (iii) The provisions of the Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder as applicable to the Company. (iv) The provisions of the Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder as applicable to the extent of Foreign Direct Investment. The Company does not have any External 42

Commercial Borrowings or other credit facilities or Overseas Direct Investment. (v) The following regulations and guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’). (a) The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015; (b) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; (c) The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008; (d) The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client. (vi) The Company has materially complied with the following and other laws applicable specifically to the Non Banking Financial Company identified by the Company including: (a) Reserve Bank of India Act, 1934, and the guidelines carried thereunder; (b) The Prevention of Money Laundering Act, 2002 We have also examined compliance with the applicable clauses of the Secretarial Standards issued by The Institute of Company Secretaries of India. During December 2015, the Company has entered into a listing agreement with Bombay Stock Exchange in India, pursuant to the issuance of Non Convertible Debentures on private placement basis. During the period under review the Company has complied with the provisions of the applicable Acts, Rules, Regulations, Guidelines, Standards, etc. as mentioned above. We further report that, during the audit period there were no actions / events in pursuance of: a). The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; b). The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992; c). The Securities and Exchange Board of India (Share Based Employee Benefits) Regulation, 2014; d). The Securities and Exchange Board of India (Delisting of equity shares) Regulations, 2009 e).The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998 43

Annual Report 2015 - 16

Five Star Business Finance Limited We further report that the Board of Directors of the Company is duly constituted with proper balance of Executive, Non-Executive Directors and Independent Directors. The changes in the composition of the Board of Directors that took place during the period under review were carried out in compliance with the provisions of the Act. Adequate notice is given to all the Directors to schedule the Board Meetings, agenda and detailed notes on agenda were sent in advance as per the applicable provisions of the Act, and a system exists for seeking and obtaining further information and clarifications on the agenda items before the meeting and for meaningful participation at the meeting. We further report that, based on the information provided by the Company, its officers and authorized representatives during the conduct of the audit, and also on the review of quarterly compliance reports taken on record by the Board of Directors of the Company, in our opinion, adequate systems and processes and control mechanism exist in the Company to monitor and ensure compliance with applicable general laws. As per the minutes of the meetings duly recorded and signed by the Chairman, the decisions of the Board were taken unanimously and no dissenting views have been recorded. We further report that there are adequate systems and processes in the company commensurate with the size and operations of the company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines. We further report that, during the audit period the Company has issued & allotted a). 5,00,000 Equity shares of Rs 10 each at a premium of Rs 120/- per share to Mr D Lakshmipathy, Promoter & CMD on preferential basis. b). 300 Non Convertible Debentures of at Rs. 1,000,000 /- (Rupees Ten Lakh Only) each total amounting to Rs. 300,000,000/- (Rupees Thirty Crores Only) to M/s Nederlandse Financierings -Maatschappij voor Ontwikkelingslanden N.V. (FMO) on private placement basis and subsequently the same were listed in the Bombay Stock Exchange. We further report that, there were no other specific events / actions in pursuance of the above referred laws, rules, regulations, guidelines, etc., having a major bearing on the Company’s affairs.

For S Sandeep & Associates S Sandeep Managing Partner FCS No. 5853

Chennai 24/05/2016 44

Annexure - E CORPORATE SOCIAL RESPONSIBILITY POLICY 1. Brief outline of the Company’s CSR policy including overview of projects or programs proposed to be undertaken and a reference to the web-link to the CSR policy and projects or programs. Five Star is a growing company and is committed towards social welfare of the common people as it caters the housing needs of self employed, informal segment of customers, belonging to middle income, primarily from semi urban and rural markets. The Company shall seek to positively impact the lives of the disadvantaged by supporting and engaging in activities that aim to improve their wellbeing. Your company would be undertaking the CSR activities as listed in Schedule VII and Section 135 of the Companies Act, 2013 and the Rules framed thereunder. The Company’s CSR policy has been uploaded in the website of the Company and the web link to CSR policy is www.fivestargroup.in/policies.php 2. Composition of the CSR Committee Mr. D Lakshmipathy Ms Kalpana Iyer Ms Bhama Krishnamurthy The Committee met once during the year under review. 3. Average net Profit of the Company for the last three financial years; Average net Profit : Rs.7,74,31,525 4. Prescribed CSR expenditure (2% of the average net profit of the last three financial years); The Company during the financial year 2015-16 is required to spend Rs.15,48,631 towards CSR 5. Details of CSR spent during the financial year: a) Total amount spent for the financial year; Rs. 300,000 b) Amount unspent, if any; Rs 1,248,631 c) Manner in which the amount spent during the financial year is detailed below.

45

Annual Report 2015 - 16

Five Star Business Finance Limited

CSR Project

Sector in

Project

Amount

Cumulative

Amount

or activity

which the

programs

outlay

expenditure

spent directly

identified

project is

(1) Local area

(budget)

upto the

or through

covered

or other

project or

reporting

implementing

(2) Specify

program

period

agency

the state and

wise

Rs. 3 lakhs

Directly

district where the projects or programs were undertaken Setting up old age homes, day care centres and such other facilities for senior citizens

Old Age Homes

Tamil Nadu, Tiruvallur

Rs. 3 lakhs

6. In case the comapny has failed to spend the two per cent of the average net profit of the last three financial years or any thereof, the company shall provide the reasons for not spending the amount in its Board’s report. There was a shortfall in incurring of the CSR expenditure during the year 2015-16 as the management is in the process of identifying suitable projects and programme which can be identified and which would complement the businesses of the Company. 7. A responsibility statement of the CSR committee that the implementation and monitoring of CSR Policy, is in compiance with CSR objectives and Policy of the company. The CSR committee confirms that the implementation and monitoring of the CSR Policy is in compliance with the CSR objectives and Policy of the company.

Chennai 24/05/2016

Mr. D. Lakshmipathy Chairman & Managing Director 46

Chairman - CSR Committee

Annexure - F Director’s appointment and Remuneration policy Five Star – DIRECTORS APPOINTMENT, REMUNERATION & EVALUATION POLICY 1. Purpose of this Policy: Five Star Business Credits Limited (“Five Star” or the “Company”) has adopted this Policy on appointment, remuneration and evaluation of the Directors, Key Managerial Personnel and Senior Management (the “Policy”) as required by the provisions of Section 178 of the Companies Act, 2013 (the “Act”). The purpose of this Policy is to establish and govern the procedure applicable: a) To evaluate the performance of the members of the Board. b) To ensure remuneration to Directors, KMP 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. c) To retain, motivate and promote talent and to ensure long term sustainability of talented managerial persons and create competitive advantage. The Company should ensure that 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 and the relationship of remuneration to performance is clear and meets appropriate performance benchmarks. 2. Definitions: Independent Director means a director referred to in Section 149(6) of the Act, as amended from time to time. Key Managerial Personnel (the “KMP”) shall mean “Key Managerial Personnel” as defined in Section 2(51) of the Act. Nomination and Remuneration Committee, by whatever name called, shall mean a Committee of Board of Directors of the Company, constituted in accordance with the provisions of Section 178 of the Act. Remuneration means any money or its equivalent given or passed to any person for services rendered by him and includes perquisites as defined under the Income-tax Act, 1961. Senior Management means personnel of the Company who are members of its core management team excluding Board of Directors. This would include all members of management one level below the Managing Director, including all functional heads.

47

Annual Report 2015 - 16

Five Star Business Finance Limited Words and expressions used and not defined in this Policy, but defined in the Act or any rules framed under the Act or the Accounting Standards shall have the meanings assigned to them in these regulations. 3. Composition of the Nomination & Remuneration Committee: The composition of the Committee to be in compliance with the Act, Rules made thereunder, as amended from time to time. 4. Role of the Committee: a) To review the structure, size and composition (including the skills, knowledge and experience) of the Board at least annually and make recommendations on any proposed changes to the Board to complement the Company’s Corporate Strategy. b) To identify individuals suitably qualified to become Board members and select or make recommendations to the Board on the selection of individuals nominated for Directorships c) To access the independence of Independent Non-Executive Directors d) To review the result of the performance evaluation process that relates to the composition of the Board. e) To make recommendation to the Board regarding he appointment and re-appointment of Directors and succession planning for Directors in particular for Chairman & Chief Executive. f) To recommend the remuneration payable to Non-Executive Directors of the Company from time to time. g) Annual appraisal of the performance of Managing Director and fixing his terms of remuneration h) Annual appraisal of the Senior Management Team reporting to the Managing Director i) Administration and superintendence in connection with the Scheme under the broad policy and framework laid down by the Company and/or by the Board of Directors. j) Formulate from time to time specific parameters relating to the Scheme, including, (i) The quantum of Options to be granted under the Scheme to a particular Eligible employee or to a category or group of Eligible employees and in aggregate; (ii) Determination of eligibility conditions and selection of Eligible employees to whom Options may from time to time be granted hereunder; (iii) The Vesting Period and the Exercise Period within which the eligible employee should exercise the Options and that Options would lapse on failure to exercise the Options within the exercise period; 48

(iv) The conditions under which Options vested in Eligible employee may lapse in case of termination of employment for misconduct; (v) The specified time period within which the Eligible employee shall exercise the vested Options in the event of termination or resignation of an Eligible employee; (vi) The right of an Eligible employee to exercise all the Options vested in him at one time or at various points of time within the Exercise Period; (vii) The procedure for making a fair and reasonable adjustment to the number of Options and to the Exercise Price in case of corporate actions such as rights issues, bonus issues, etc; (viii) Make rules by which all options including non-vested options vest immediately in case of sale, transfer or takeover of the company or amalgamation of the Company with any other company, etc. and provide for rules related to exercise period under such circumstances. (ix) Make rules related to performance based vesting of such part of the options granted to eligible employees as the Committee may decide. (x) To prescribe, amend and rescind rules and regulations relating to the Scheme; (xi) To construe, clarify and interpret the terms of the Scheme and Options granted pursuant to the Scheme; k) Identification of 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. l) Formulation of 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 5. Appointment and removal of Director, KMP and Senior Management: 5.1 Appointment criteria and qualification: The Committee shall identify and ascertain the integrity, qualification, expertise and experience of the person for appointment as Director and recommend to the Board his / her appointment. For the appointment of KMP (other than Managing Director) or Senior Management, a person should possess adequate qualification, expertise and experience for the position he / she is considered for the appointment. Further, for administrative convenience, the appointment of KMP (other than Managing Director) or Senior Management, the Managing Director is authorised to identify and appoint a suitable person for such position. 49

Annual Report 2015 - 16

Five Star Business Finance Limited However, if the need be, the Managing Director may consult the Committee / Board for further directions / guidance. 5.2 Term: The Term of the Directors including Managing Director / Independent Director shall be governed as per the provisions of the Act and Rules made thereunder, as amended from time to time. Whereas the term of the KMP (other than the Managing Director) and Senior Management shall be governed by the prevailing HR policies of the Company. 5.3 Evaluation: The Committee shall carry out evaluation of performance of every Director. The Committee shall identify evaluation criteria which will evaluate Directors based on knowledge to perform the role, time and level of participation, performance of duties, level of oversight, professional conduct and independence. The appointment / re-appointment / continuation of Directors on the Board shall be subject to the outcome of the yearly evaluation process. 5.4 Removal: Due to reasons for any disqualification mentioned in the Act or under any other applicable Act, Rules and Regulations thereunder and / or for any disciplinary reasons and subject to such applicable Acts, Rules and Regulations and the Company’s prevailing HR policies, the Committee may recommend, to the Board, with reasons recorded in writing, removal of a Director, KMP or Senior Management. 5.5 Policy Review: Subject to the approval of the Board, the Nomination & Remuneration Committee reserves the right to review and amend this policy, if required, to ascertain its appropriateness as per the needs of the Company. The company may be amended by passing a resolution at a meeting of the Nomination and Remuneration Committee. 6. Remuneration of Managing Director, KMP and Senior Management: The remuneration / compensation / commission, etc., as the case may be, to the Managing Director will be determined by the Committee and recommended to the Board for approval. The remuneration / compensation / commission, etc., as the case may be, shall be subject to the approval of the shareholders of the Company and Central Government, wherever required and shall be in accordance with the provisions of the Act and Rules made thereunder. Further, the Managing Director of the Company is authorised to decide the remuneration of KMP and Senior Management, and which shall be decided by the Managing Director based on the standard market practice and prevailing HR policies of the Company.

50

7. Remuneration to Non-executive / Independent Director: The remuneration / commission / sitting fees, as the case may be, to the Non-Executive / Independent Director, shall be in accordance with the provisions of the Act and the Rules made thereunder for the time being in force or as may be decided by the Committee / Board / shareholders Framework for performance evaluation of Directors, Board & committees Board of Directors and Evaluation

Source

Particulars

Board’s Role in Evaluation

Companies Act – Section (134) (p)

Evaluation to be done by the entire Board

Has to do formal annual evaluation of its own performance Has to do formal annual evaluation of its Committees Has to do formal annual evaluation of all the Individual directors Has to do performance evaluation of Independent Director’s (excluding the director being evaluated)

Companies Act – Section 134 (3) (p) read with Rule 8 of Companies (Accounts) Rules 2014

Disclosure

Board’s Report

51

Remarks Board overall evaluation Evaluation Committees

of

Evaluation of Individual directors The said evaluation will be the basis for continuation of the extension / the term of the Independent Director

All the listed companies and public companies with paid-up share capital of Rs Twenty Five crore or more shall have to include such a statement in Board Report indicating the manner & criteria of formal Board evaluation.

Annual Report 2015 - 16

Five Star Business Finance Limited Nomination & Remuneration Committee and Evaluation

Source Companies Act – section 178 (2)

Particulars Nomination & Remuneration Committee (NRC)

Committee’s Role in evaluation Evaluate every director’s performance

Remarks Evaluation of Directors include : a. Independent directors b. Non executive directors c. Executive directors and whole time directors d. Managing Directors e. Chairperson

Role and functions of Independent Directors in relation to evaluation: Source Companies Act – Schedule IV – Code for ID (Part VII)

Particulars In the separate meeting of Independent Directors

Independent Directors’ Role in evaluation Review the performance of Non-Independent Directors Review the performance of the Board as a whole Review the performance of the Chairperson of the Company, taking into account the views of Executive Director’s and Non Executive Director’s Assess the: a. Quality b. Quantity and c. Timeliness Of flow of information between the Company management and the Board, that is necessary for the Board to effectively and reasonably perform their duties.

52

Remarks Review of a. Non executive directors b. Managing Director, whole time directors and Executive directors Review the performance of the Board as a whole Review the performance of the chairperson Quality of information includes its relevance, completeness, and authenticity, how comprehensive, concise and clear such information is. As regards quantity, the independent director need to assess that the information is neither too less nor too much resulting in an information overload. Typically the information to the board members should carry an executive summary which is supplemented by detailed notes and where necessary back-up papers as annexure. Timeliness of information flow can be gauged from facts such as how soon are important events communicated between board meetings, timeliness of the agenda papers, etc

Familiarisation Programme for Independent Directors As required by the provisions of Schedule IV to the Act the Company is required to develop a Familiarisation Programme for the Independent Directors of the Company. The Company will impart Familiarisation Programmes for new Independent Directors inducted on the Board of the Company. The Familiarisation Programme of the Company will provide information relating to the Company, finance industry, business model of the Company, geographies in which Company operates, etc. The programme also intends to improve awareness of the Independent Directors on their roles, rights, responsibilities towards the Company. Further, the Familiarisation Programme should also provide information relating to the financial performance of the Company and budget and control process of the Company. The Managing Director or such other authorised officer(s) of the Company shall lead the Familiarisation Programme on aspects relating to business / industry. The Chief Financial Officer, CS or such other authorised officer(s) of the Company may participate in the programme for providing inputs on financial performance of the Company and budget, control process, etc. CRITERIA FOR EVALUATION Criteria for evaluation of the Board and non-independent directors : 1. Composition of the Board and availability of multi-disciplinary skills 2. Commitment to good Corporate Governance Practices 3. Adherence to Regulatory Compliance 4. Track record of financial Performance 5. Grievance redressal mechanism 6. Existence of integrated Risk Management System 7. Use of Modern technology 8. Commitment to CSR 9. Stakeholder focus 10. Knowledge sharing 11. Drive and commitment 12. Financial & Risk Awareness Criteria for evaluation of Chairman & Managing Director: 1. Leadership qualities 2. Standard of Integrity 3. Understanding of Macroeconomic trends and Micro Industry trends. 4. Public Relations 5. Future Vision and Innovation 53

Annual Report 2015 - 16

Five Star Business Finance Limited Criteria for evaluation of Independent Directors: 1. Qualifications & Experience 2. Standard of Integrity 3. Attendance in Board Meetings/AGM 4. Understanding of Company’s business 5. Value addition in Board Meetings Criteria for evaluation of the Committees: 1. Qualification & Experience of members 2. Depth of review of financial performance 3. Oversight of Audit & Inspection 4. Review of regulatory compliance 5. Fraud monitoring 6. Defined set of terms of reference 7. Consideration of the recommendations of the committees by the Board 8. Familiarity of the members with the policies, procedures and guidelines of the Committees 9. Receipt of agenda & supporting materials by the members 10. Attendance at committee meetings

54

CORPORATE GOVERNANCE REPORT 55

Five Star Business Finance Limited

Report on Corporate Governance

Annexure - G

The fundamental objective of “Good Corporate Governance and Ethics” is to ensure the commitment of an organization in managing the company in a legal and transparent manner in order to maximize the long-term value of the company for its stakeholders including shareholders, customers, employees and other partners. Company Philosophy Five-Star Business Finance Limited (Formerly known as Five Star Business Credits Limited) (Five Star) philosophy on corporate governance envisages adherence to the highest levels of commitment, integrity, transparency, accountability and fairness, in all areas of its business and in all interactions with its stakeholders. Your Company has adopted a set of internal guidelines on Corporate Governance in line with its policy. Board of Directors Your Board of Directors currently consists of eight (8) members including the Chairman cum Managing Director. Of these, five (5) are Independent Directors and two (2) Non-Executive Directors. Mr. D Lakshmipathy is the Executive Chairman and Managing Director of the Company. During the financial year ended 31st March 2016, seven (7) Board Meetings were held on 29th April 2015, 30th June 2015, 21st August 2015, 18th September 2015, 25th November 2015, 26th February 2016 and 12th March 2016 respectively and not more than 120 days elapsed between any two meetings. Particulars of the Directors’ attendance to the Board/ Committee Meetings and particulars of their other company directorships are given below: Name

Name of

Other

Attendance

Directorship

Board

Committee

Directorship

D. Lakshmipathy

Chairman & Managing Director

7

16

2

B. Haribabu

Independent Director

5

8

-

M. K. Mohan

Independent Director

3 10

-

Ramanathan Annamalai

Independent Director

2

NA

9

Bhama Krishnamurthy*

Independent Director

NA

NA

7

Kalpana Iyer*

Independent Director

NA

NA

6

Vikram Vaidyanathan

Nominee Director

4

NA

8

L. R. Raviprasad

Non Executive Director

6

16

1

*Ms Bhama Krishnamurthy and Ms Kalpana Iyer were appointed as Independent Director (Additional) on 12th April 2016.

56

Changes in Board of Directors Mr. Rishi Navani, Nominee Director of Matrix Partners India Investment Holdings II, LLC resigned from the Board with effect from 5th August 2015 and Mr. M Anandan, Chairman resigned from the Board with effect from 21st August 2015. Your Directors express their deep appreciation for the services rendered by Mr M Anandan during his tenure as Chairman. They also thank him for providing his valuable insights and guidance to the Company during his tenure as Chairman which has helped the company achieve the good performance over the years.

The Company has received a notice from a member pursuant to Section 161 of the Companies Act, 2013 proposing their candidature for appointment as Independent Directors. Mr. L R Raviprasad, Non Executive Director, retires by rotation at the ensuing 32nd Annual General Meeting and being eligible has offered himself for reappointment. Independent Directors

Your Directors also express their deep appreciation for the services rendered by Mr Rishi Navani during his tenure as Director.

Your Company has appointed Independent Directors as per the provisions of the Companies Act, 2013. None of the Independent Directors are Promoters or related to Promoters. They do not have pecuniary relationship with the Company and further do not hold two percent or more of the total voting power of the Company.

Mr. Vikram Vaidyanathan was appointed as Nominee (additional) Director of Matrix Partners India Investment Holdings II, LLC with effect from 21st August 2015 and holds office upto the date of the ensuing 32nd Annual General Meeting and being eligible has offered himself for reappointment.

Every Independent Director, at the first meeting of the Board in which he/she participates as a Director and thereafter at the first meeting of the Board in every financial year, gives a declaration that he/she meets the criteria of independence as required under Section 149 (7) of the Companies Act, 2013.

The Company has received a notice from a member pursuant to Section 161 of the Companies Act, 2013 proposing his candidature for Nominee Director, liable to retire by rotation.

The Company had issued a formal letter of appointment to all Independent Directors and the terms and conditions of their appointment have been disclosed in the website of the Company.

Mr. Ramanathan Annamalai was appointed as an additional Independent director by the Board on 26th February 2016 and was appointed as an Independent Director of the Company for a period of 5 years by the share holders at the Extra Ordinary General Meeting held on 12th April 2016.

Your Company has adopted a Code of Conduct for the Independent Directors as required under Schedule IV of the Companies Act, 2013.

Ms. Kalpana Iyer and Ms Bhama Krishnamurthy were appointed as Independent (additional) Directors with effect from 12th April 2016 and holds office upto the date of the ensuing 32nd Annual General Meeting and being eligible have offered themselves for reappointment.

57

Code of Conduct Your Company has adopted a Code of Conduct for members of the Board (incorporating code for Independent Directors) and the Senior Management. The Code aims at ensuring consistent standards of conduct and ethical business practices across the Company.

Annual Report 2015 - 16

Five Star Business Finance Limited Committees of the Board

requirements relating to financial statements. • Disclosure of any Related Party Transactions. • Qualifications in draft Auditors Report.

1. Audit & Risk Management Committee Composition and Meetings As on the date of this report, the Audit & Risk Management Committee currently consists of the following members: 1. Ms. Kalpana Iyer, Independent Director (Chairperson) 2. Mr. A Ramanthan, Independent Director 3. Ms. Bhama Krishnamurthy, Independent Director The Audit & Risk Management Committee of the Board met four (4) times during the year on 30th June 2015, 21st August 2015, 25th November 2015 & 26th February 2016 respectively. Terms of reference: 1. Oversight of the Company’s financial reporting process and the disclosure of its financial interest to ensure that the financial statements are correct, sufficient and credible. 2. The recommendation for appointment, remuneration and terms of appointment of statutory, secretarial and internal auditors of the company. 3. Reviewing with the management the quarterly, half yearly and annual financial statements before submission to the Board, with particular reference to: • Matters required to be included in Directors’ Responsibility Statement which will be a part of the Board’s report to members. • Changes, if any in accounting policies and practices and reasons for the same. • Major Accounting entries involving estimates based on the exercise of judgment by management. • Significant adjustments made in the financial statements arising out of audit findings. • Compliance with accounting and other legal

58

4. Reviewing with the management, performance of statutory and internal auditors, adequacy of the internal control systems. 5. 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 and frequency of internal audit. 6. Discussion with internal auditors, any significant findings and follow up thereon. 7. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. 8. Discussion with statutory auditors before the audit commences, about the nature & scope of audit as well as post audit discussion to ascertain any area of concern. 9. Laying down the review of procedures relating to risk assessment & risk minimization to ensure that executive management controls risk through means of a properly defined framework 10.Credit & Portfolio Risk Management. 11. Operational & Process Risk Management. 12. Laying down guidelines on KYC Norms. 13. Review on quarterly basis the securitization/ bilateral assignment transactions and investment activities of the Company. 14. Annual Review of Company’s policies framed pursuant to RBI and NHB guidelines and suggest

changes if any, required to the Board for adoption.

3. Mr. L R Raviprasad, Non Executive Director

15. Review and monitor the auditor’s independence and performance, and effectiveness of audit process;

The Nomination & Remuneration Committee of the Board met three (3) times during the year on 30th

16. Examination of the financial statement and the auditors’ report thereon;

June 2015, 18th September 2015 & 26th February 2016 respectively. Terms of Reference

17. Approval or any subsequent modification of transactions of the company with related parties; 18. Scrutiny of inter-corporate loans and investments; 19. Valuation of undertakings or assets of the company, wherever it is necessary; 20. Evaluation of internal financial controls and risk management systems; 21. Monitoring the end use of funds raised through public offers and related matters The Committee shall mandatorily review the following information: 1. Management discussion and analysis of financial condition and results of operation 2. Statement of significant related party transactions

1. To review the structure, size and composition (including the skills, knowledge and experience) of the Board atleast annually and make recommendations on any proposed changes to the Board to complement the Company’s Corporate Strategy. 2. To identify individuals suitably qualified to become Board members and select or make recommendations to the Board on the selection of individuals nominated for Directorships. 3. Identification of persons who are qualified to become directors and who maybe 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. 4. To access the independence of Independent NonExecutive Directors.

3. Management letters/letters of internal control weaknesses issued by the statutory auditors. 4. Internal audit report relating to internal control weaknesses

5. Formulation of 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.

2. Nomination & Remuneration Committee 6. To review the result of the performance evaluation process relating to the Board.

Composition and Meetings As on the date of this report, the Nomination & Remuneration Committee currently consists of the following members:

7. To make recommendation to the Board regarding the appointment and re- appointment of Directors and succession planning for Directors in particular for Chairman & Chief Executive.

1. Mr. A Ramanathan, Independent Director 2. Mr. Haribabu, Independent Director

59

Annual Report 2015 - 16

Five Star Business Finance Limited 8. To recommend the remuneration payable to NonExecutive Directors of the Company from time to time. 9. Annual appraisal of the performance of Managing Director and fixing his terms of remuneration. 10. Annual appraisal of the Senior Management Team reporting to the Managing Director. 11. Administration and superintendence of ASOP scheme of the Company.

actions connected therewith. 6. To consider and approve any secured loan to be given by the Company including staff loans, loans against property, SME loans and other loans. 7. To consider and approve transactions / proposal / arrangements for sale / assignment / securitization of the loan receivables / book debts of the Company on such terms and conditions as it thinks fit. 8. To authorize affixing the common seal of the Company in accordance with the manner laid down in the Articles of Association and to authorize taking the Common Seal out of the registered office of the Company.

3. Business & Resource Committee Composition and Meetings As on the date of this report, the Business & Resource Committee currently consists of the following members: 1. Mr. D Lakshmipathy, Chairman & Managing Director 2. Mr. A Ramanathan, Independent Director 3. Mr. Haribabu, Independent Director 4. Mr. L R Raviprasad, Non Executive Director Terms of Reference 1. To consider and approve, availing of all kinds and types of loans and credit facilities.

9. To consider and approve the investment policy for the Company and its amendment and/or modification from time to time. 10. Issuance of Share/Debenture and other security certificates. The Business & Resource Committee of the Board met eight (8) times during the year on 28th September 2015, 29th September 2015, 30th November 2015, 25th February 2016, 1st March 2016, 4th March 2016, 23rd March 2016 & 24th March 2016 respectively. 4. Asset Liability Committee

2. To consider and approve creation of security in connection with the aforesaid loan and credit facilities. 3. To establish current and other banking accounts with various banks; to specify and change the authorized signatories and their transaction limits to the said banking accounts; to close current and other banking accounts. 4. To consider and approve any unsecured loans to be given by the Company other than staff loan advances. 5. To consider and approve securitization arrangements and to authorize carrying out of all

60

Composition and Meetings The Asset Liability Committee currently consists of the following members: 1. Mr. D Lakshmipathy, MD 2. G Srikanth, CFO 3. Rangarajan Krishnan, COO 4. Mr. Arunkumar, Head (Accounts)

Terms of Reference 2. To recommend the amount of expenditure to be incurred on the activities referred above

1. Liquidity Risk Management 2. Management of Market (Interest Rate) Risk

3. To monitor the Corporate Social Responsibility activities of the company from time to time.

3. Funding and Capital Planning 4. Credit and Portfolio Risk Management 5. Setting credit norms for various lending products of the company

Your Company has adopted a Corporate Social Responsibility Policy and forms part of the Director’s Report as Annexure E. The Corporate Social Responsibility Committee of the Board met one (1) time during the year on 26th Feb 2016.

6. Operational and Process Risk Management 7. Laying down guidelines on KYC norms

Remuneration of Directors 8. To approve and revise the actual interest rates to be charged from customers for different products from time to time applying the interest rate model. The Asset Liability Committee meets regularly to review the areas falling within its terms of reference as given above. 5. Corporate Social Responsibility Committee Your Company has constituted a Corporate Social Responsibility Committee as per Section 135 of Companies Act, 2013 and the Rule made there under. As on the date of this report the Committee consists of following members:

Sitting Fees All directors except the CMD and Nominee Directors are paid a sitting fee of Rs. 10,000 for attending every meeting of the Board and Rs. 5,000 for attending every meeting of the Audit & Risk Management Committee, Nomination & Remuneration Committee, Resourcing and Business Committee thereof. The details of sitting fees paid to Directors during the financial year are as follows: Name

Sitting Fees (`) Board Committee

M. K. Mohan 30,000 5,000

1. Mr. D Lakshmipathy, Chairman & Managing Director 2. Ms. Kalpana Iyer, Independant Director 3. Ms. Bhama Krishnamurthy, Independant Director

B. Haribabu

50,000

25,000

L. R. Raviprasad

60,000 25,000

Ramanathan Annamalai

20,000

-

Terms of Reference 1. To formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII to the Companies Act, 2013 as may be amended or modified from time to time.

61

Annual Report 2015 - 16

Five Star Business Finance Limited Commission to Non-Executive Directors The Non-executive Directors (including Independent Directors) of the Company are paid remuneration by way of profit related Commission based on the criteria laid down by the Nomination and Remuneration Committee /Board. The same has been approved by the Board and the shareholders and is within the limits prescribed under the Companies Act, 2013.

CMD/CFO Certification

The details of commission paid to directors during the financial year ended 31st March 2016 are as follows:

During the financial year ended 31st March 2016, one (1) Annual General Meeting was held on 21st August 2015.

Director

Commission (`)

1,50,000

Mr. B. Haribabu

1,50,000

Mr.Ramanathan Annamalai

-

Remuneration to Chairman & Managing Director The details of remuneration paid for the financial year ended 31st March 2016 are as follows: Particulars

General Body Meetings

All the proposed resolutions, including special resolutions, were passed by the shareholders as set out in the Notices.

Mr. L. R. Raviprasad 1,50,000 Mr. M.K. Mohan

CMD/ CFO have given a certificate to the Board as per the format given in regulation 17(8) of the SEBI (Listing Obligations and Disclosure Requirements) 2015.

Amount (` Lakhs)

Salary 60,00,000 Commission Total 60,00,000

62

General Shareholder Information Particulars

Details

Financial Year 32nd Annual General Meeting Day, Date and Time

April 1st 2015 to March 31st 2016 Friday, 16th September 2016, 10:15 A.M

Venue Towers Club, “Tower Valley “, W Block, 3rd Main Road, Anna Nagar, Chennai - 600 040 Registrar and Transfer Agents Sharepo Services (India) Pvt. Ltd 13 AB, Samhita Warehouse Complex, 2nd Floor, Sakinaka Telephone Exchange Lane, off Andheri Kurla Road, Sakinaka, Andheri (E), Mumbai - 400072 Demat ISIN Number

INE128S07010 (Non Convertible Debentures - Listed on Bombay Stock Exchange)

Shareholding Pattern as on 31st March, 2016 Name of the Shareholder

No. of Shares

Percentage of Share Holding

Category (A) Promoters & His Relatives (B) Directors & His Relatives

5,044,460

47.14

-

-

B. Haribabu

162,500 1.52

L.R. Raviprasad

127,200 1.19

M. K. Mohan

26,150 0.24

Vikram Vaidyananthan

- -

(C) Investor Matrix Partners India Investment Holdings II, LLC 3,940,240 36.82 (D) Public

1,399,450 13.08

Total

107,000,000 100.00

For and on behalf of the Board of Directors Mr. D. Lakshmipathy Chairman & Managing Director DIN: 01723269

Chennai 24/05/2016 63

Annual Report 2015 - 16

Five Star Business Finance Limited Annexure - H PARTICULARS OF EMPLOYEES A. Information as per Rule 5(1) of Chapter XIII, Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 Remuneration paid to Whole Time Director(s):

Name of the Director

Title

D.Lakshmipathy Chairman & Managing Director

Remuneration in FY 2015-16

% increase of remuneration in FY 2015-16 as Compared to FY 2014-15

6,000,000

42.86%

Ratio of remuneration to Median Remuneration of Employees 27.71

Ratio of remuneration to Revenues

Ratio of remuneration to Net Profit

1.27%

4.47%

Ratio of remuneration to Net Profit Name

Remuneration

Remuneration

of the

in FY 2015-16*

in FY 2014-15*

Director

(in `)

(in `)

6,000,000

4,200,000

D.Lakshmipathy

% increase of remuneration (FY 2015-16 over FY 2014-15) 42.86%

* The Independent Directors were paid sitting fees of Rs 10,000 per meeting for attending Board meeting, Rs 5,000 per meeting for attending Committee meetings and Rs 1.50 lakhs as commission for the year.No other remuneration was paid over and above the aforementioned amounts during FY 2015-16. Remuneration paid to Key Managerial Personnel (KMP):

Name of the KMP

Title

G. Srikanth

CFO

V. Nikita

Company Secretary

% increase of remuneration in FY 2015-16 as Compared to FY 2014-15

Ratio of remuneration to Revenues

Ratio of remuneration to Net Profit

Remuneration in FY 2015-16

Remuneration in FY 2014-15

Rs. 1,877,872

NIL

NA

0.40%

1.40%

Rs. 139,500

NIL

NA

0.03%

0.10%

1. The number of employees on the rolls of the Company as of 31st March, 2016 and 31st March, 2015 was 293 and 167 respectively. 2. The median remuneration of employees was Rs. 216,555 and Rs. 191,073 for FY 2015-16 and FY 2014-15 respectively. 3. The operating revenue for FY 2015-16 stood at Rs 462,818,141, whereas for FY 2014-15 the same was Rs. 329,887,387. The net profit for the FY 2015-16 was Rs. 134,148,780 whereas for the FY 2014-15 the same was Rs. 99,219,623. 4. The aggregate remuneration of employees for the FY 2015-16 was Rs. 76,722,358. The aggregate remuneration of whole time director and key managerial personnel was Rs. 8,038,972. 5. The key parameters of remuneration availed by the directors are considered by the Board of Directors. 6. It is hereby affirmed that the remuneration paid is as per the as per the Policy for Directors, Key Managerial Personnel and other Employees. B. Information as per Rule 5(1) of Chapter XIII, Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 No employee of the Company was in receipt of remuneration, in excess of Rs 60 Lakhs during the financial year 2015-16. 64

MANAGEMENT DISCUSSION & ANALYSIS 65

Five Star Business Finance Limited

Management Discussion & Analysis INTRODUCTION

Five Star at a Glance

The strength of an economy is judged by the vibrancy and inclusiveness of its credit offtake. Growth in credit offtake is directly proportional to the economic growth of the nation. An economy where the credit offtake is quite low would find it challenging to grow. In most of the economies across the world, the providers of credit are the banks. We don’t find non banking financial institutions in most of the other economies since banks are able to cater to the public thereby ensuring vibrant credit offtake in the economy. However we find a peculiar situation as far as the Indian economy is concerned. Due to certain inherent challenges, banks have not been able to completely provide the vibrancy or the inclusiveness required in the provision of credit to the public at large. One of the reasons for this is the organizational setup found in banks. Banks have proven to be very efficient when it comes to lending to organized institutions or individuals who are already part of the banking system. But they have not been able to reach out to the small entrepreneurs and small business persons who have not been an active part of the formal banking channel.

Five Star is a 32 year old NBFC set up in 1984 by Mr. V K Ranganathan, who was keen provide credit facilities to eligible borrowers. The Company went through multiple crests and troughs and indulged itself in providing a suite of products before finally settling on “Loans against property” (LAP) in the form of Small Business Loans and Small Housing Loans. Despite the long history, the Company managed to achieve fairly significant growth under the stewardship of the current Chairman and Managing Director Mr. D Lakshmipathy, with the able mentoring of the founder. Five Star is a pioneer in extending collateralized small business loans to customers in urban, semiurban and fast -growing rural geographies. Under the leadership of the current MD, the company grew from 6 to 73 branches and from a portfolio of Rs. 180 Mn to 2000 Mn over the last 6-7 years. With its strong branch network and the guidance of a strong Board and leadership team, the Company is poised for much larger growth in the years to come.

The Non-banking financial institutions (NBFCs) were created to address this gap and it would not be an overstatement to mention that they have been able to achieve this admirably. We find many NBFCs in India who have been successful in providing a plethora of credit products even to the organized institutions and better profile individuals and thereby becoming a competitor to banks in the lending business. There are also niche NBFCs, who provide a limited suite of products or cater to a specified set of borrowers, who have been hitherto excluded from the banking system. Five-Star Business Finance Limited (Five Star) is one such NBFC, which specializes in providing Small Business Loans (SBL) and Small Housing Loans (SHL) with a bias towards entrepreneurs involved in the service industry.

Historically over the last 6 years, Five Star has been witnessing a growth rate of about 25% - 30% in its portfolio. The financial year 2015-16 was a landmark year in the sense that the Company managed to increase its portfolio by over 50% along with a significant increase in its branch penetration. The Company deepened its branch network in Andhra Pradesh along with strengthening its network in Tamil Nadu. Five Star aims to be one of the top NBFCs providing SBL and SHL in the Southern region of the country.

66

Financial Year 2015-16

Excellent capitalization profile is one of the strong points of Five Star. The Company has always been well capitalized with a Capital Adequacy Ratio of over 52% in FY 2015, which dropped to about 39% on account of the portfolio growth. Matrix Partners,

a Private Equity fund with over Rs. 3000 Cr under management and consistently ranked in the top five venture firms (in terms of returns to its investors) holds a significant minority stake in the Company. Recently, Five Star has also received capital infusion to the tune of about Rs.114 Cr from NHPEA Chocolate Holding B.V, a PE fund managed by Morgan Stanley, one of the largest private equity players across the globe. This will significantly augment the company’s capitalization levels and would be a major lever of its growth in the months to come.

During the financial year under discussion, the company also managed to get its bank loan rating upgraded to BBB from CARE Ratings. The upgrade clearly reflects the promoter and senior management experience, well managed credit policy with stringent norms, healthy profitability levels, and comfortable capital adequacy levels supported by periodical equity infusion. With the recent equity infusion, the company is confident of achieving further upgrades in the credit rating which will help obtain lower cost of funds, which can then be passed on to the borrowers in the form of lower interest rate loans without compression in the spreads or margins.

67

Another major achievement of the company during the financial year 2015-16 was the deepening of its resource profile. Historically the company was dependent on few banks and financial institutions for its funding requirements. However, during the current financial year, the company managed to expand its banking relationships by getting liquidity facilities from banks like Bank of Baroda, IDBI bank, Karnataka bank, South Indian bank, Karur Vysya bank, Lakshmi Vilas bank (some of the sanctions were availed during FY 2016-17) and NBFCs like Cholamandalam Investment and Finance Company to the list of its lending relationships. During the year, Five Star also issued non-convertible debentures to FMO, Dutch development bank which is one of the largest bilateral private sector banks globally, with an investment portfolio of EUR 9.2 billion spanning over 85 countries. Operational Highlights The Company, which was predominantly operating in the state of Tamil Nadu, ramped up its operations in the state of Andhra Pradesh during the current financial year. From 39 branches as at FY 2015, the Company closed at 64 branches for FY 16. The branches in AP increased from 2 in FY 2015 to 19 in FY 2016, which demonstrates that the Company is well poised to tap the Andhra market in the years to come. As already stated, there was a significant growth in the portfolio by over 50%.

Annual Report 2015 - 16

Five Star Business Finance Limited The following are some of the operational highlights:

Particulars

Mar ‘16

Mar ‘15

Mar ‘14

Mar ‘13

Mar ‘12

# States

3 3 1 1 1

# Districts

34 27 16 13 6

# Branches

64 39 28 20 10

# Borrowers

7,560 5,273 4,000 3,032 2,363

Disbursements (` Cr)

131.94 79.23 61.04 43.63 42.59

Total Portfolio (` Cr)

198.13 131.52 100.80 77.28 58.88

As can be seen from the table above, the Company showed commendable improvement on every single operational parameter and looks well poised for years of significant growth in the future. Financial Highlights The financial year 2015-16 showed marked improvement on the financial parameters as well and some of the key financial metrics are given below:

Particulars

Amount in ` Cr

Mar ‘16

Mar ‘15

Mar ‘14

Mar ‘13

Mar ‘12

Paid-up capital

10.70

10.20

9.00

7.00

7.00

Net Worth

91.47 71.25 47.72 24.97 20.41

Total Portfolio

198.13

131.52

100.80 77.28 58.88

Total Borrowings

128.63 87.70 64.68 56.64 36.84

Total Revenue

47.80 33.60 25.58 18.62 13.97

PAT

13.72 9.92 7.27 6.04 4.82

Total Assets

225.27

164.67

Customer Engagement Initiatives

116.62

85.50

60.61

At Five Star, we have seen this customer behaviour day in and day out. We have customers who have taken repeated loans from us because they have been immensely satisfied with the level of our services and also our quick turnarounds. Five Star believes in the principle of growing with the customer and understands that the cashflows of its customers, given their profile, are subject to temporary variations. Due to this, the company engages in discussion / dialogue with the customer in the event of loan delinquencies rather than resorting to extreme measures like enforcement of security, etc. Only when the delinquencies remain uncured does the company resort to legal remedies.

It is often said that “Customer satisfaction is worthless. Customer loyalty is priceless”. The very basic expectation of every customer is that he / she should be satisfied, so there is nothing to feel exhilarating about satisfying a customer. To be satisfied is the basic right of every customer and this is precisely the reason for the existence of organizations. However what is more important is that the company should conduct its business in such a manner to earn the loyalty of the customer forever. A loyal customer is the true asset of every business. Once a customer becomes loyal to an organization, it would be well nigh impossible to shift his loyalty. 68

Transparency in customer dealings, understanding the needs and issues of our customers, uncompromising process efficiencies have resulted in our borrowers continuing to avail additional loans from Five Star. In fact, the company continues to do about 40% of its business from existing customers and their referrals every month, which stands a testimony of the confidence that the customers have in Five Star. Human Resources Every company in the service industry prospers or fails depending on the abilities of its staff. In order to serve the customers and earn their loyalty, every company needs competent, capable and trustworthy staffs, who can help translate the company’s mission into reality. The staffs need to be trained, motivated, rotated between functions so that they are able to enhance their skills and also contribute effectively to the cause of the organization. As at the end of March 31, 2016, the number of employees stood at 333 across the 3 states that the company has operations in. This is an increase of about 58% over the staff strength as at Mar ’15. Increased branch network and also sprucing up the staffing at the existing branches has resulted in the increase in staff strength. During the current financial year, the company also undertook senior management hires, who can help steer the growth of the company. Five Star understood the need for hiring competent professionals who can help translate the mission and vision of the company into actual reality. The company hired a Chief Operating Officer and Chief Financial and Information Officer to manage the assets and liabilities respectively. In addition, the company also hired State Head for AP, HR Head for TN and also carried out internal promotions to ensure that the respective verticals were manned by the right people as the company embarks on a plan of steep growth. It would be an understatement to mention that Five Star thrives on the strength of its staff. A number of

69

staff has been with the company for more than 2 decades, which stands testimonial to the focus on human resources prevalent in the company. The company has been able to retain staff due to employee friendly work conditions, comparable monetary compensation and also work challenges which have served as great motivators. Performance appraisal is conducted on a periodic basis and the high performers are well rewarded through salary increments and also promotions to higher designations. Necessary training is also provided to staff which enables them to hone their skills leading to their personal as well as organizational benefit. Due to all the factors enumerated here, the company enjoys one of the lowest attrition in the financial services industry. Training Training to staff is an essential prerequisite for the success of any organization. The field officers and branch managers in an NBFC, who are the face of the organization to the customers, will have to be trained adequately so that they are able to understand the financial requirements of the customers and take necessary steps to satisfy such needs. In addition to this, the staff should also be made to understand the policies and processes of the organization so that they are able to discharge their duties without compromising any of the controls laid down by the organization. Five Star imparts induction and also continuous training to staff so that they have a clear understanding of the processes followed and are able to discharge their duties effectively and efficiently. The Company also equips them with necessary skills so that they stay prepared to shoulder additional responsibilities which will help in their career progression. Immediately upon the recruitment of new field officers or branch managers, they are sent to the Head Office where they are trained in all the functions like credit, collections, accounts and finance, operations, etc before they are even sent to the branch for loan origination. This ensures the confidence and morale of the field officers / branch managers when they face

Annual Report 2015 - 16

Five Star Business Finance Limited up to the customers and they are able to present the products of the company more effectively to potential customers. Information Technology Leveraging the benefits of technology remains a very important means of achieving cost reduction for any organization. Further the use of technology is also critical to ensure availability of right information with the Management for taking operational and strategic decisions. Five Star has an in-house developed Management Information System which has been addressing the transaction and MIS needs of the organization. The software also has an inbuilt accounting module, which helps the company to manage its financial accounting and audit requirements. The company undertakes a periodic evaluation of its software to identify opportunities for any improvements which can facilitate better decision-making. Periodic review of the system is done by the Management team and annual review of the adequacy of system controls is also done by our statutory auditors. This ensures that any changes required are made to the system without any delays and the system has adequate controls to prevent any errors of omission or commission. With the increase in scale and branch network, the company has recognized the need for a more sophisticated ERP system, which will provide significantly better data entry and information capabilities. The company has already finalized FinnOne Neo of Nucleus Software as the ERP solution which will be implemented over the next few months. This system will have separate modules for loan origination, loan management and collections, which will provide the management with better tracking ability at various stages of the loan’s life cycle. Microsoft Dynamics, a comprehensive accounting package, will also be integrated into the ERP solution. The ERP solution shall also provide the company with mobile capabilities, which would help reduce turnaround time especially in loan origination.

70

Treasury Adequate and timely availability of liquidity is the very breath of a financial institution. As NBFCs, we depend on banks and financial institutions for our funding needs. It is essential to constantly liaise with the banks and financial institutions to ensure that we have an unhampered flow of liquidity which can help grow the lending business. Lending business is like holding a tiger by its tail; it is well nigh impossible to exit the lending business even if one wants to. Collections would become a problem if further funds are not lent. So it is very important that the lending business is managed in the right earnest and flow of liquidity assumes paramount importance for this purpose. During the financial year 2015-16, Five Star managed to mop up liquidity in the form of term loans from banks and financial institutions, cash credit facilities from banks and also through issue of non-convertible debentures. The Company managed to garner Rs. 85 Cr of funds as against Rs. 60.50 Cr for 201415 resulting in an increase of about 40%. During the current financial year, the company also carried out the issue of a large round of nonconvertible debentures (on private placement) amounting to Rs 30 Cr to FMO, a Dutch development bank. The transaction was consummated after a detailed diligence of the company’s operations, financials, accounting and other policies, etc. The presence of an institution like FMO on the balance sheet of the company brings manifold benefits like lower cost of funds, longer tenure funds, access to better and bigger funders, etc. It also opens up a new channel of funding to the company, which can be tapped in the future for availing big ticket sanctions. Given the comfortable capital adequacy at Five Star, banks and financial institutions do come forward to provide credit support. The upgrade in bank loan rating to BBB by CARE Ratings, would also give us access to better sources of funding. We are confident that we will be able to access much higher quantum

of funds at significantly lower cost in the forthcoming years. Collections In a lending business, the activity of collections is as important as the activity of origination, if not more. It is essential to ensure that the moneys lent are repaid on time by the borrowers. Since the moneys lent have an underlying funding in the form of debt or equity, it is essential to ensure that the amounts are collected in full and on time so that the debt can be serviced on time and the company can also meet the return expectations of its shareholders. Five Star has an efficient and effective collections mechanism, which clearly defines the actions that the company will have to take at various stages of loan delinquency. The company has an outbound calling team that checks and acknowledges the payments made by the borrowers and also ascertains the reasons for non-payment from the defaulting borrowers. While the branch officials have the primary responsibility for both origination and collections, there is a dedicated collections team that handles deep delinquency cases. The effectiveness of the company’s collections mechanism can be found in the fact that not a single property has been repossessed or sold to recover the borrower loan. The company also adopts very high standards in dealing with its customers. No form of coercion or intimidation is employed in recovering the customer dues. The company officials are well trained to understand the issues of the customers, if any, and legal remedies are taken up only as a last resort. The company ensures that the customer rights are duly protected in all its dealings with them. This has ensured a very positive impage of the company in the minds of its customers.

71

Risk Management Every organization especially those involved in the business of lending are subject to multiple risks. Credit risk arising out of delinquencies leading to non-performing portfolio, Operational risk cropping up from inadequate processes or failure to adhere to predefined processes, Liquidity risk impacting the flow of funds to the organization and Regulatory risk arising out of sectoral considerations are some of the major risks faced by every organization. The Risk Management framework of an organization serves to minimize the impact in the event of any risks threatening to compromise the organizational strength. Five Star has put in adequate checks and balances in each of the functional activities to minimize these risk incidents and also to counter-act as and when these risks occur. Adherence to regulations without any compromise, following the processes in an immaculate manner, centralized credit decisioning and loan sanction, constant collections follow up are some of the means by which we ensure minimal occurrence of risks. NBFCs are regulated by the Reserve Bank of India, which has stipulated certain regulations to be followed by each and every NBFC. These regulations could range from master directions to the prudential norms to be followed by the NBFCs, corporate governance regulations, etc. At Five Star, adherence to regulations is given paramount importance and the regulations are followed in both letter and in spirit. The Board not only lays down the framework under the purview of these regulations, which should be adhered to by the company, it also ensures through periodic review that the company is in turn in full adherence to these regulations. While branches are set up at the respective locations to bring in business, the sanction of loans is centralized at the Head Office. The Credit officials at the Head Office are tasked to evaluate the reports submitted by the branch officials, commission independent verification by the field credit officials, and finally take a call based on the reports available. Neither

Annual Report 2015 - 16

Five Star Business Finance Limited the branch officials nor the field credit officials have a sanction power, which is housed centrally at the Head Office. This ensures complete independence in the processing of loan proposals. Delegation matrix prescribing sanction limits for each of the credit officials is also in place and any proposal that crosses these limits will have to be approved either by the Chief Operations Officer or the Managing Director. This process helps eliminate any kind of credit risk or the risk of collusion that may arise during the course of business. By having a centralised decisioning system, the company also ensures a quick turnaround of its loan proposals. Deviations, if any, are approved or rejected swiftly thereby reducing the turnaround time. The Credit team at the Head Office also seeks timely clarifications from the branch / field credit officials to ensure minimum TAT on the loan proposals. Liquidity is another challenge faced by the NBFCs. Inadequate liquidity could severely impact the operations of NBFCs since liquidity is the primary raw material for the functioning of NBFCs. In order to address the liquidity risk, Five Star has an ALCO (Asset-Liability Committee) consisting of senior management staff who meet at periodic intervals to discuss the liquidity as well as the ALM position of the organization. The maturity pattern of the assets and liabilities are evaluated and the ALCO ensures that the ALM gaps in the various time buckets conform to the ALM (Asset Liability Management) policy laid down and approved by the Board. The short and long term cashflow position of the organization is also discussed to ensure that the Company does not face any liquidity risk. Five Star mandates strict adherence to regulatory guidelines comprising of KYC requirements, transparency, provisioning norms, NPA recognition norms, etc, and thereby expend all efforts to ensure orderly functioning, which ensure that the company is on the right side of regulations laid down by the Reserve Bank of India. Compliance to the regulations puts Five Star on a stronger foot and it is able to address any sectoral concerns as and when they crop up with minimal impact. The actions of the

72

regulator in the recent past in the form of granting small finance bank licenses to NBFCs and also making such licenses on-tap augur well for the NBFC industry and we are confident that the industry would stand in good stead from a regulatory perspective in the years to come. Last but not the least and in fact one of the biggest developments in the company has been the grant of Certificate of Registration provided by National Housing Bank to Five Star to carry on the business of a Housing Finance Company. Though Five Star already has a portion of its portfolio in the form of housing loans, the grant of registration would help the company get access to cheaper funds from banks (on account of the priority sector benefit that the banks would get on such lending to HFCs) and for a much longer tenure. This would help the company lend to its borrowers at a lower interest rate and a longer tenure, which would significantly reduce the EMI burden of the borrowers. The company can also target to enroll its loans under the Housing for all (Pradhan Mantri Awas Yojana) scheme which aims at providing interest subsidies to the borrowers and reduce their debt burden significantly. Five Star is like a plane waiting to take off; the plane has been well fueled, maintained to manage the rigours of a long journey, and adequately staffed to reach for the skies. Five Star too has all the necessary infrastructure in place to sale new highs in the years to come. Exciting times beckon us and it is up to us to make the best of our good times.

STANDALONE FINANCIAL STATEMENTS 73

Five Star Business Finance Limited

Auditor’s Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FIVE-STAR BUSINESS FINANCE LIMITED

3. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit.

1. Report on the Financial Statements We have audited the accompanying financial statements of Five-Star Business Finance Limited (Formerly known as “Five-Star Business Credits Limited”) (“the Company”), which comprise the Balance Sheet as at 31st March, 2016, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information. 2. Management’s Responsibility for the Financial Statements The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes 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 frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. 74

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder. We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.

4. Opinion In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: a) In the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2016; b) In the case of the Statement of Profit and Loss, of the profit for the year ended on that date; and c) In the case of the Cash Flow Statement, of the cash flows for the year ended on that date. 5. Report on Other Legal and Regulatory Requirements (i) As required by the Companies (Auditor’s Report) Order, 2016 (“the Order”) issued by the Central Government of India in terms of sub-section 11 of section 143 of the Act, we give in the “Annexure - A” a statement on the matters specified in paragraph 3 and 4 of the Order. (ii) As required by Section 143 (3) of the Act, we report that: (a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. (b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. (e) On the basis of the written representations received from the directors as on 31st March, 2016 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2016 from being appointed as a director in terms of Section 164 (2) of the Act. (f) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the Operating Effectiveness of such controls, refer to our separate report in “Annexure - B” (g) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us: i. the Company has disclosed the effect of the pending legal proceedings against it in its financial statements as mentioned in Note 30.8 of the Notes to the Accounts; ii. based on the current assessment of the long term contracts, in the ordinary course of business, the company has made adequate provision for losses, where required, as explained in Note 30.9 of the Notes to the Accounts. The company did not enter into any derivative contracts during the year. iii. during the year, there has been no delay in transferring the amounts required to be transferred to the Investor Education and Protection Fund.

(c) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account. (d) In our opinion, the aforesaid financial statements

75

Chennai 24th May 2016

For BRAHMAYYA & Co Chartered Accountants Firm Regn. No.000511S L.Ravi Sankar Partner Membership No. 025929 Annual Report 2015 - 16

Five Star Business Finance Limited “ANNEXURE A” TO THE AUDITORS’ REPORT REFERRED TO IN PARAGRAPH 5 OF OUR REPORT OF EVEN DATE

3. In our opinion and according to the information and explanations given to us, the company has not granted any loans, made any investments or provided any guarantee or security as envisaged under Section 185 and 186 of the Companies Act,2013 respectively.

1. a).The Company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets.

4. The company has not accepted deposits from public.

b). Fixed assets have been physically verified by the Management during the year, in accordance with an annual plan of verification, which in our opinion is reasonable having regard to the size of the Company and the nature of the fixed assets. The discrepancies noticed on such verification were not material and have been properly dealt with in the books of account.

5. The Central Government has not prescribed the maintenance of cost records under Section 148(1) of the Act. 6. i). In our opinion and according to the information and explanations given to us, undisputed statutory dues, including Provident Fund, Employees State Insurance, Income tax, sales tax, Service tax, value added tax, cess and other material statutory dues have been regularly deposited during the year with the appropriate authorities. According to the information and explanations given to us, there are no arrears of statutory dues which are outstanding as at 31st March 2016 for a period of more than six months from the date they became payable.

c). The title deeds of immovable properties are held in the name of the company. 2. In our opinion and according to the information and explanations given to us, the Company has not granted any loans secured or unsecured to companies, firms, Limited Liability partnerships or other parties covered in the register maintained under Section 189 of the Act. Therefore, clauses (iii) (a), (b) and (c) of paragraph 3 of the Order are not applicable to the Company for the year.

Name of dues

Amount (` Lakhs)

ii). According to the records of the Company and the information and explanations given to us, there are no dues of Service tax which have not been deposited on account of any dispute. Details of disputed Income tax not deposited are as follows:

Period to which the

Forum where the dispute

amount relates

is pending

Income Tax 6,73,698 Financial Year 2005 - 06 Commissioner of Income Tax (Appeals)

76

7. Based on our examination of the records and the information and explanations given to us, the Company has not defaulted in the repayment of dues to the banks, financial Institution or to debenture holders. The company does not have any borrowings from Government. 8. Based on our examination of the records and the information and explanations given to us, the term loans were applied for the purposes for which the loans were obtained. 9. To the best of our knowledge and belief and according to the information and explanations given to us, during the year, no fraud by the Company and no fraud on the Company by its officers or employees were noticed or reported during the year. 10. The Company paid / provided for managerial remuneration within the limits of section 197 read Schedule V to the Act. 11. According to the information and explanations given to us and based on our examination of the records of the Company, transactions with related parties are in compliance with Section 177 and Section 188 of the Act where applicable and details of such transactions have been disclosed in the financial statements as required by the applicable accounting standards.

12. The Company has made preferential allotment of Equity shares during the year. The company has complied with the applicable provisions of section 42 of the Act. The amounts raised by issue of Equity shares through Preferential allotment were used for the purposes for which the funds were raised. Apart from the above the company has not made any private placement of shares or fully or partly convertible debentures during the year. 13. In our opinion and according to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with directors or persons connected with them. 14. The Company is required to be registered under section 45IA of Reserve Bank of India Act, 1934 and has obtained the registration. 15. In our opinion and according to the information and explanations given to us, the nature of the Company’s business/ activities during the year has been such that clause (ii) and clause (xii) of paragraph 3 of the Companies (Auditor’s Report) Order, 2016 are not applicable to the Company for the year.

For BRAHMAYYA & Co Chartered Accountants Firm Regn. No.000511S L.Ravi Sankar Partner Membership No. 025929

Chennai 24th May 2016 77

Annual Report 2015 - 16

Five Star Business Finance Limited “ANNEXURE B” TO THE AUDITORS’ REPORT REFERRED TO IN PARAGRAPH 5 OF OUR REPORT OF EVEN DATE Report on the Internal Financial Controls under Clause (i) of Sub-Section 3 of Section 143 of the Companies, Act, 2013 (“the Act”) We have audited the internal financial controls over financial reporting of Five-Star Business Finance Limited (formerly known as “Five-Star Business Credits Limited”) (“the Company”) as of 31st March 2016 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date. Management’s Responsibility Financial Controls

for

Internal

The Company’s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (‘ICAI’). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013. Auditors’ Responsibility Our responsibility is to express an opinion on the Company’s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls over Financial Reporting

78

(the “Guidance Note”) and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects. Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company’s internal financial controls system over financial reporting. Meaning of Internal Financial Controls over Financial Reporting A company’s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal financial control over financial reporting includes those policies and procedures that (1) pertain to

the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Opinion In our opinion, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31st March 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

Inherent Limitations of Internal Financial Controls Over Financial Reporting Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

For BRAHMAYYA & Co Chartered Accountants Firm Regn. No.000511S L.Ravi Sankar Partner Membership No. 025929

Chennai 24th May 2016 79

Annual Report 2015 - 16

Five Star Business Finance Limited

Balance Sheet as at 31st March 2016 Particulars

` As at 31.03.2016

Note No.

A EQUITY AND LIABILITIES 1. Shareholder’s funds (a) Share Capital 3 (b) Reserves and surplus 4 2. Non-current liabilities (a) Long term borrowings 5 (b) Other Long term Liabilities 6 (c) Long term provisions 7 3. Current liabilities (a) Short Term borrowings 8 (b) Trade payables: Total outstanding dues of (A) Micro Enterprises & Small Enterprises (B) Creditors other than Micro enterprises & small enterprises 9 (c) Other current liabilities 10 (d) Short term provisions 11

As at 31.03.2015

107,000,000 102,000,000 804,664,224 610,515,444 911,664,224 712,515,444 800,228,098 347,201,603 121,694 2,370,412 8,841,955 6,029,738 809,191,747 355,601,753 138,215,578

157,454,001

- 5,717,853 5,642,754 371,251,439 385,044,341 12,214,076 30,424,762 527,398,946 578,565,858

Total 2,248,254,917 1,646,683,055 B ASSETS 1 Non- current assets (a) Fixed assets (i) Tangible assets 12 18,430,760 7,305,184 (ii) Intangible assets 12 657,127 469,391 (b) Non-Current Investments 13 150,355,615 (c) Deferred tax assets(net) 14 10,087,770 5,578,059 (d) Long term receivables under financing activity 15 1,463,174,307 882,642,145 (e) Long term loans and advances 16 9,754,578 10,771,232 (f) Other Non Current Assets 17 617,900 314,464 1,653,078,057 907,080,475 2 Current assets (a) Current Investments 18 40,000,000 1,875,000 (b) Cash and Bank Balances 19 30,657,625 287,185,083 (c) Short term receivables under financing activity 20 518,079,321 432,502,980 (d) Short term loans and advances 21 5,963,718 14,284,822 (e) Other Current Assets 22 476,196 3,754,695 595,176,860 739,602,580



Total

Significant Accounting Policies and Notes to the Accounts As per our report of even date attached For Brahmayya & Co. Chartered Accountants Firm Registration Number 000511S

2,248,254,917 1,646,683,055

2 to 30

For and on behalf of Board of Directors

L. Ravi Sankar Partner Membership No. 025929 Place : Chennai Date: 24.05.2016 80

D. Lakshmipathy Chairman & Managing Director

B. Haribabu Director

G. Srikanth Chief Financial Officer

V. Nikita Company Secretary

Statement of Profit & Loss for the Year ended 31st March 2016 ` Particulars

Note No.

2015 - 2016

Revenue from Operations

23

462,818,141

329,887,387

Other income

24

10,262,272

6,149,138

473,080,413

336,036,525

2014 - 2015

Revenue

Total Revenue Expenses Finance costs

25

140,728,963

103,711,509

Employee benefit expenses

26

78,410,236

48,851,309

Other expenses

27

38,363,809

23,435,050

Provision, loan loss and other charges

28

7,276,578

4,445,844

Depreciation

12

5,113,527 3,618,843

Total Expenses

269,893,113

184,062,555

Profit Before Tax

203,187,300

151,973,970

Tax expenses Current tax expenses

73,548,231

54,694,831

Deferred tax

(4,509,711)

(1,940,484)

69,038,520 52,754,347

Profit for the Year

134,148,780

99,219,623

Earnings per share - (Refer Note 30.4) Weighted Average number of Shares (Face Value Rs.10/- per share) 10,427,322 9184,110 Basic (of Rs.10/- each)

12.87

10.80

Diluted

12.87

10.80

Significant Accounting Policies and Notes to the Accounts As per our report of even date attached For Brahmayya & Co. Chartered Accountants Firm Registration Number 000511S

2 to 30

For and on behalf of Board of Directors

L. Ravi Sankar Partner Membership No. 025929 Place : Chennai Date: 24.05.2016

81

D. Lakshmipathy Chairman & Managing Director

B. Haribabu Director

G. Srikanth Chief Financial Officer

V. Nikita Company Secretary

Annual Report 2015 - 16

Five Star Business Finance Limited

Cash Flow Statement for the Year ended 31st March 2016 ` As at 31.03.2016

Particulars

As at 31.03 2015

A) CASH FLOW FROM OPERATING ACTIVITIES Net Profit Provision for Taxation

134,148,780

99,219,623

69,038,520

52,754,347



203,187,300 151,973,970

Add: Financial Expenses

140,728,963



103,711,510 343,916,263 255,685,480

Depreciation

5,113,527 3,618,843

Provision against Non - Performing assets

1,485,008

1,347,390

General Provision on Standard Assets

1,635,373

771,067

Provision for Gratuity

1,354,604

1,301,151

-

(59,371)

(Profit)/ loss on sale of Fixed Assets

Operating Profit Before Working Capital Changes 353,504,775 262,664,560 (Increase) Decrease in Loans and Advances

(666,108,504)

(307,135,246)

(Increase) Decrease in Other Receivables

9,337,758

2,550,426

(Increase) Decrease in Other Current Assets

3,278,499

(2,135,686)

(Increase) Decrease in Other Non Current Assets

(303,436)

360,856

Increase (Decrease) in Current Liabilities

184,968

4,062,706

Increase (Decrease) in Other Current Liabilities

(61,437)

(1,418,681)



(653,672,152) (303,715,625)



(300,167,377) (41,051,065)

Financial Expences Direct Taxes Paid

(133,692,818)

(106,988,787)

(73,524,496)

(50,330,536)



(207,217,314) (157,319,323)

Net Cash from Operating Activities (A)

(507,384,691)

(198,370,388)

(16,426,838)

(4,214,869)

-

151,500

3,750,000

(5,000,000)

(38,125,000)

5,733,257

(Purchase) / Sale of Non Current Investments

(150,355,615)

-

Net Cash from Investing Activities (B)

(201,157,453)

3,330,112

B) CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets Sale of Fixed Assets Investments in Fixed Deposit (Purchase) / Sale of Current Investments

82

` As at 31.03.2016

Particulars

As at 31.03 2015

C) CASH FLOW FROM FINANCING ACTIVITIES Long Term & Medium Term Increase in Share Capital

5,000,000

12,000,000

60,000,000

144,000,000

Proceeds from Issue of Debentures

300,000,000

17,500,000

Debentures Redeemed

(64,970,000)

(68,179,000)

Increase (Decrease) in Term Loans from Banks & Others

194,495,495

156,646,700

(4,811,000)

1,066,000

(67,123,218)

67,123,218

53,070,599

60,013,015

Dividend paid (Including Corporate Dividend Tax)

(19,897,189)

(15,191,401)

Net Cash from Financing Activities (C)

455,764,687 374,978,532

Increase in Share Premium

Increase (Decrease) in Loan from Directors Increase (Decrease) in Other Borrowings Short Term Increase (Decrease) in Bank Borrowings

Net Increase in Cash and Cash Equivalents (A) + (B) + (C) (252,777,457)

173,278,032

Cash and Cash Equivalents at the Beginning of the Year 277,435,082

104,157,050

Cash and Cash Equivalents at the End of the Year 24,657,625 277,435,082 Components of Cash and Cash Equivalents at the end of the Year Cash on Hand

3,108,914

5,276,939

Cash with Scheduled Banks

21,548,711

272,158,143

Cash and Cash Equivalents

24,657,625

277,435,082

As per our report of even date attached For Brahmayya & Co. Chartered Accountants Firm Registration Number 000511S

For and on behalf of Board of Directors

L. Ravi Sankar Partner Membership No. 025929 Place : Chennai Date: 24.05.2016

83

D. Lakshmipathy Chairman & Managing Director

B. Haribabu Director

G. Srikanth Chief Financial Officer

V. Nikita Company Secretary

Annual Report 2015 - 16

Five Star Business Finance Limited 1. Corporate information

2.3. Depreciation / Amortisation

Five-Star Business Credits Limited (the Company) is a Registered Non Banking Finance Company (NBFC) with Reserve Bank of India (RBI). The Company follows RBI guidelines applicable for NBFCs. The Company is a public limited company with Registered & Head Office at Kilpauk, Chennai.

Depreciation on Fixed Assets is provided in accordance with useful life specified in the schedule II of the Companies Act, 2013. Depreciation for additions and deletions are provided on a pro-rata basis.

The Company has been in business for 32 years providing finance for Small Business Loans and for House renovations/extensions. 2. Significant accounting policies 2.1. Basis of accounting and preparation of financial statements The financial statements are prepared under the historical cost convention in accordance with the generally accepted accounting principles in India, Accounting Standards (AS) notified by the Companies (Accounting Standards) Rules, 2006 (as amended) / issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 2013.

Intangible Assets are amortised over the expected useful life of 5 years. 2.4. Revenue recognition Interest Income is recognised under the Internal Rate of Return method to provide a constant periodic rate of return on net investment outstanding on the Loan contracts. Income on Non-Performing assets is recognised only when realised and any interest accrued until the asset became a Non performing Asset and remaining overdue is de-recognised by reversing the interest income. Processing Fees, Penal Interest, Cheque bounce charges and other charges are recognised as income upon certainty of receipt 2.5. Tangible fixed Assets

The Company follows the prudential norms for income recognition, asset classification and provisioning as prescribed by the Reserve Bank of India for Non Deposit Taking Non Banking Finance Companies (NBFC-ND).

Fixed assets are stated at cost less accumulated depreciation. Cost includes taxes, duties, freight and incidental expense related to the acquisition and installation of the asset. 2.6. Foreign translations

2.2. Use of estimates The preparation of the financial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known / materialise.

84

currency

transactions

and

Transactions in foreign currencies entered into by the Company are accounted at the exchange rates prevailing on the date of the transaction or at rates that closely approximate the rate at the date of the transaction. 2.7. Investments Investments are classified as Current and Non Current based on their nature and intended holding period. Non Current Investments are valued at cost, Current Investments are valued at lower of cost or net realisable value.

2.8. Employee benefits

2.11. Taxes on Income

Employee benefits include provident fund, gratuity and other employee benefits.

Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the provisions of the Income Tax Act, 1961.

Defined contribution plans Contributions to the Employees Provident Fund Scheme maintained by the Central Government and the Company’s contribution to the fund are charged to the revenue.

Deferred tax is recognized on timing differences, being the difference between taxable and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. 2.12. Impairment of assets

Defined benefit plans For defined benefit plans in the form of gratuity which is non funded, the cost of providing benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each Balance Sheet date. Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the schemes. 2.9. Leases Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on accrual basis.

The carrying amounts of assets are reviewed at each Balance Sheet date to determine whether there is any indication of impairment of the carrying amount of the Company’s assets. If any indication exists, an asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of the asset exceeds the recoverable amount. 2.13. Provisions and contingencies Provisions are recognised only when the Company has present or legal obligations as a result of past events for which it is probable that an outflow of economic benefit will be required to settle the transaction and when a reliable estimate of the amount of obligation can be made. Contingent liability is disclosed for (i) Possible obligation which will be confirmed only by future events not wholly within the control of the Company or (ii) Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognized in the financial statements since this may result in the recognition of income that may never be realized.

2.10. Earnings per share Basic earnings per share is computed by dividing the profit / (Loss) after tax (including the post tax effect of extraordinary item, if any) by the weighted average number of equity shares outstanding during the year. 85

Annual Report 2015 - 16

Five Star Business Finance Limited

Notes forming part of Financial Statements Note 3 Share Capital Particulars

As at 31.03.2016 No. of Shares

`

As at 31.03.2015 No. of Shares

`

(a) Authorised Equity Shares of Rs.10 each

12,000,000

120,000,000

12,000,000

120,000,000

10,700,000

107,000,000

10,200,000

102,000,000

(b) Issued, Subscribed and fully paid up Equity Shares of Rs.10 each Notes: (i) Reconciliation of the number of shares and amount outstanding at the beginning and at the end of the reporting year

As at 31.03.2016 Particulars

No. of Shares

As at 31.03.2015 `

No. of Shares

`

Equity Shares Opening Balance

10,200,000

102,000,000

9,000,000

90,000,000

500,000

5,000,000

1,200,000

12,000,000

Add - Shares Issued During the Year Closing Balance

10,700,000 107,000,000 10,200,000 102,000,000

(ii) Pursuant to the approval accorded by the Shareholders at the Extraordinary General Meeting held on 24th January 2015, the Board of Directors at the Board Meeting held on 29th September 2015 allotted 350,000 Equity Shares of Rs.10 each at a premium of Rs.120 per share and on 30th November 2015 allotted 150,000 Equity Shares of Rs.10 each at a premium of Rs.120 per share on preferential basis amounting to Rs.65,000,000/- to Mr.D. Lakshmipathy, Chairman and Managing Director (iii) Terms/rights attached to Equity Shares: The Company has only one class of equity shares having a par value of Rs.10 each. Each holder is entitled to one vote per equity share. Dividends are paid in Indian Rupees. Dividends proposed by the Board of Directors, if any is subject to the approval of the shareholders at the Annual General Meeting except in case of interim dividend. Repayment of capital will be in proportion to the number of equity shares held.

86

(iv) Details of shares held by each shareholder holding more than 5% shares: As at 31.03.2016 Class of shares / Name of shareholder

% of holding in that class of shares

No. of Shares held

Equity Shares Matrix Partners India Investment Holdings II, LLC D. Lakshmipathy L. Hema

As at 31.03.2015 No. of Shares held

% of holding in that class of shares

3,940,240 36.82 3,940,240 38.63 2,518,730 23.54 1,937,830 19.00 2,182,760 20.40 2,166,760 21.24

Note 4 Reserves and Surplus

` As at 31.03.2016

Particulars (a) Securities premium account Opening balance Add: Premium on shares issued during the year Closing Balance

As at 31.03.2015

349,905,000 60,000,000 409,905,000

205,905,000 144,000,000 349,905,000

(b) Statutory Reserve (Note 4.1) Balance at the beginning of the year Add: Amount transferred from surplus In the statement of profit and loss Closing Balance

69,700,000 26,900,000 96,600,000

49,716,698 19,983,302 69,700,000

(c) General Reserve Balance at the beginning of the year Add: Amount transferred from surplus In the statement of profit and loss Closing Balance

38,400,000 13,500,000 51,900,000

28,400,000 10,000,000 38,400,000

(d) Surplus in the statement of Profit and Loss Balance at the beginning of the year Less: Transition Reserve on Depreciation under Companies Act, 2013 Add: Profit for the year Less: Appropriations Transfer to Statutory Reserve Transfer to General Reserve Dividend Distribution tax on Dividend Net Surplus in the statement of Profit and Loss Total Reserves and surplus

152,510,444 103,211,835 - 40,523 152,510,444 103,171,312 134,148,780 99,219,623 26,900,000 19,983,302 13,500,000 10,000,000 - 16,531,397 - 3,365,792 246,259,224 152,510,444 804,664,224 610,515,444

4.1 Represents the Reserve Fund created under Section 45-IC of the Reserve Bank of India Act. 1934

87

Annual Report 2015 - 16

Five Star Business Finance Limited

Note 5 : Long Term Borrowings

` As at 31.03.2016

Particulars

As at 31.03.2015

A. Secured: a. Redeemable Non - Convertible Debentures

302,500,000

23,839,000

- From Banks

234,707,744

176,688,952

- From Other Parties

259,812,354

123,335,651

3,208,000

23,338,000

b. Term Loans:

B. Unsecured: a. Loan from Related Parties

800,228,098 347,201,603

5.1 Debentures The company had privately placed Secured Redeemable Non-Convertible Debentures with a maturity period of upto 5 years with an outstanding of Rs.320,846,000 (Previous Year ` Rs.86,062,000) Maturity of Secured Non-Convertible Debentures As at 31.03.2016 Implicit Interest Rate %

< 1 Year

1 to 2 Years

2 to 5 Years

Total

> 9.75 to 12

624,000

-

-

624,000

> 12 to 12.5

17,722,000

2,500,000

-

20,222,000

13.60 -

-

-

300,000,000

300,000,000

Total

18,346,000

2,500,000

300,000,000 320,846,000

As at 31.03.2015 Implicit Interest Rate %

< 1 Year

1 to 2 Years

2 to 5 Years

Total

> 9.75 to 12

22,937,000

-

-

22,937,000

> 12 to 12.5

34,737,000

20,513,000

2,500,000

57,750,000

4,549,000

826,000

-

5,375,000

62,223,000

21,339,000

2,500,000

86,062,000

> 12.5 to 12.63 Total

88

5.2 Details of Loans from Banks - Secured

Name of the Bank

Tenor

` Repayment Terms

As at 31.03.2016

As at 31.03.2015

A. Cash Credit Facilities: The Federal Bank Limited

On Demand

On Demand

46,023,130

45,801,906

City Union Bank Limited

On Demand

On Demand

74,370,903

44,528,877

Tamilnadu Mercantile Bank Limited

On Demand

On Demand

17,821,545

-



Total

138,215,578

90,330,783

b. Term Loans: The Federal Bank Limited *

36 Months Principal Monthly,

The Federal Bank Limited *

Interest Monthly

Interest Monthly 369,729 600,185

36 Months Principal Monthly,

Karnataka Bank

Interest Monthly 5,018,297 Interest Monthly 25,000,000

Interest Monthly 3,750,000 11,550,000

36 Months Principal Quaterly,

The Ratnakar Bank Limited

Interest Monthly 20,833,333 37,500,000

36 Months Principal Quaterly,

HDFC Bank Limited

Interest Monthly 46,666,667 70,000,000

24 Months Principal Monthly,

DCB Bank Limited

Interest Monthly 15,930,656 40,691,249

36 Months Principal Quaterly,

Bank of Maharastra

Interest Monthly 29,165,000 45,833,000

36 Months Principal Monthly,

Tamilnadu Mercantile Bank Limited

Interest Monthly 34,840,000 50,000,000

48 Months Principal Monthly,

The Laksmi Vilas Bank Limited

Interest Monthly 25,000,004 50,000,000

48 Months Principal Monthly,

DCB Bank Limited TL II

Interest Monthly 40,614,859

-

60 Months Principal Quaterly,

Bank of Baroda

-

36 Months Principal Monthly,

The Ratnakar Bank Limited

-

60 Months Principal Monthly,

SIDBI

398,931

36 Months Principal Monthly,

HDFC Bank Limited

32,386

Interest Monthly 95,000,000

-

48 Months Principal Monthly,



Interest Monthly 73,214,285



-

Total 415,435,216 306,573,365

89

Annual Report 2015 - 16

Five Star Business Finance Limited (a). Loans are secured by hypothecation of specified Receivables under Financing Activity (b). * these loans secured by Hypothecation of the vechicles purchased from the loan amount (c). All the above loans have been guaranteed by Mr. D. Lakshmipathy, Chairman & Managing Director

Current Year

Particulars

`

Previous Year

Long Term Borrowings (Refer Note 5)

234,707,744

176,688,952

Other Current Liabilities (Refer Note 10)

180,727,472

129,884,413



415,435,216 306,573,365

Total

5.3 Details of Loans from Financial Institutions

Name of the Lenders MAS Financial Services Limited

` Repayment Terms

Tenor

Interest Monthly

Interest Monthly 2,777,777 19,444,445

36 Months Principal Monthly,

MAS Financial Services Limited

Interest Monthly 5,555,552 22,222,220

36 Months Principal Monthly,

MAS Financial Services Limited

Interest Monthly 4,861,124 13,194,452

60 Months Principal Monthly,

Reliance Capital Limited

Interest Monthly 100,000,000 Interest Monthly Interest Monthly Interest Monthly Interest Monthly

Interest Monthly 16,687,044 25,887,730

60 Months Principal Monthly,

Hinduja Leyland Finance Limited

Interest Monthly 50,000,000

-

48 Months Principal Monthly,

Hinduja Leyland Finance Limited

- 12,398,561

36 Months Principal Monthly,

IFMR Capital Finance Pvt Ltd

- 20,573,309

24 Months Principal Monthly,

IFMR Capital Finance Pvt Ltd

- 7,339,059

24 Months Principal Monthly,

IFMR Capital Finance Pvt Ltd

- 9,691,606

24 Months Principal Monthly,

IFMR Capital Finance Pvt Ltd

-

24 Months Principal Monthly,

Reliance Capital Limited

- 12,499,997

36 Months Principal Monthly,

MAS Financial Services Limited

As at 31.03.2015

36 Months Principal Monthly,

MAS Financial Services Limited

As at 31.03.2016

Interest Monthly 20,045,002 27,099,813

48 Months Principal Monthly,



Interest Monthly 25,550,072

90

-

` Name of the Lenders Sundaram Finance Limited

Repayment Terms

Tenor

Interest Monthly 24,589,114 40,156,141

36 Months Principal Monthly,

Sundaram Finance Limited

Interest Monthly 29,980,158 44,889,048

60 Months Principal Monthly,

M & M Financial Services Limited

As at 31.03.2015

36 Months Principal Monthly,

Sundaram Finance Limited

As at 31.03.2016

Interest Monthly 46,043,581

-

24 Months Principal Monthly,



Interest Monthly 18,263,061 42,618,607

Cholamandalam Investment and Finance Company Limited

60 Months Principal Monthly,



Interest Monthly 44,481,950



-

Total 388,834,435 298,014,988

(a) All loans are secured by hypothecation of specified Receivables under Financing Activities (b) All the above loans have been guaranteed by Mr.D. Lakshmipathy, Chairman & Managing Director except Hinduja Leyland Finance Ltd. and Mahindra & Mahindra Financial Services Ltd.,

`

As at 31.03.2016

Particulars

As at 31.03.2015

Long Term Borrowings (Refer Note 5)

259,812,354

123,335,651

Other Current Liabilities (Refer Note 10)

129,022,081

174,679,337

Total

388,834,435 298,014,988

Note 6 : Other Long Term Liabilities

` As at 31.03.2016

Particulars

As at 31.03.2015

Interest accrued but not due on borrowings

121,694

Total

121,694 2,370,412

91

2,370,412

Annual Report 2015 - 16

Five Star Business Finance Limited Note 7 : Long Term Provisions

` As at 31.03.2016

Particulars

As at 31.03.2015

Provision for Employee Benefits Provision for Gratuity

4,127,375

2,854,745

Provision for Standard Assets

3,633,176

2,190,625

Provision for Non-Performing Assets

1,081,404

984,368

Total

8,841,955 6,029,738

Other Provisions

Note 8 : Short Term Borrowings

` As at 31.03.2016

Particulars

As at 31.03.2015

A. Secured: a. Cash Credit facilities with Scheduled Banks (Refer Note 8.1)

138,215,578

90,330,783

-

67,123,218

B. Unsecured: a. Commercial Papers (Refer Note 8.2) Total

138,215,578 157,454,001

8.1 Refer Note 5.2 for details of Security, tenor and repayment terms 8.2 Face Value of Commercial Paper Outstanding as on 31.03.2016 was Rs.NIL(31.03.2015 – Rs. 75,000,000)

`

Note 9 : Trade Payables

As at 31.03.2016

Particulars

As at 31.03.2015

Total outstanding dues of creditors other than micro enterpries and small enterprises

5,717,853

Total

5,717,853 5,642,754

92

5,642,754

Note 10 : Other Current Liabilities

` As at 31.03.2016

Particulars

As at 31.03.2015

Current Maturities of Long Term Borrowings (Refer Note 10.1) - from Banks

180,727,472

129,884,413

- from Other Parties

129,022,081

174,679,337

On Debentures

17,275,000

60,906,000

On Loan from Directors

20,822,000

5,503,000

Interest accrued but not due on borrowings

17,666,447

8,381,583

790,115

831,776

1,071,000

1,317,000

Interest accrued on unpaid matured Debentures

286,338

300,669

Unpaid Loan from Directors

200,000

41,000

54,000

14,107

3,336,986

3,185,456

Unclaimed Dividend Unpaid matured debentures

Interest accrued on unpaid Loan from Directors Statutory due Payable Total

371,251,439 385,044,341

10.1 Refer Note 5.2 & 5.3 for details of security, tenor and repayment terms. Note 11 : Short Term Provisions

` As at 31.03.2016

Particulars

As at 31.03.2015

Provision for Employee Benefits Provision for Gratuity

302,065

220,091

Provision for Standard Assets

1,230,453

1,037,631

Provision for Non-Performing Assets

4,785,681

3,397,709

Proposed Dividend - Equity

-

16,531,397

Provision for Distribution tax on Dividend

-

3,365,792

5,895,877

5,872,142

Other Provisions

Provision for Income Tax Total

12,214,076 30,424,762

Provision for Income Tax comprises net off TDS and Advance Tax Rs. 122,347,185/(31.03.2015 – Rs.85,500,679/-)

93

Annual Report 2015 - 16

Total Previous Year

17,488,216 13,775,368

(II) Intangible Assets Computer Software 837,903

Total

16,650,313

33,915,054 9,713,641 5,113,527 17,488,216 6,443,301 3,618,843

- 1,169,059 368,512 143,421

- 511,933 657,127 - 14,827,168 19,087,887 - 61,389 409,892 9,713,641 7,774,575

-

7,774,575 7,332,067

469,391

7,305,184 - 14,315,235 18,430,760 -

32,745,995 9,345,129 4,970,106

4,173,973 1,296,816 220,391

Balance as at 31.03.2015

-

- 6,009,325 9,218,141 - 4,042,050 2,214,637

Balance Balance as at as at Deduction 31.03.2016 31.03.2016

1,614,004

- 16,426,838 502,021 4,214,869

331,156

16,095,682

5,840,000

Vehicles

Transition Reverse

744,405 914,642 - - 3,349,218 6,253,577

For the Year

- - - -

Balance as at 01.04.2015

Net Block

15,227,466 3,962,149 2,047,176 6,256,687 2,675,171 1,366,879 355,624 559,018 1,659,047 ,200,427 9,602,795 2,148,791 1

Balance as at 31.03.2016

Depreciation

- - - -

Deletion

3,762,795

Addition

Gross Block

7,091,344 2,284,700 879,638

94

(I) Tangible Assets Furniture & Fixtures 8,136,122 3,971,987 Computers 779,409 Office Equipments

Balance as at 01.04.2015

Note 12 : Fixed Assets

Five Star Business Finance Limited

Note 13 : Non-current Investments

` As at 31.03.2016

Particulars Investment Property

As at 31.03.2015

355,615 -

Trade Investments in Subsidiary Company Five-Star Housing Finance Private Limited 15,000,000 equity share of Rs.10 each

150,000,000 -

Total

150,355,615 -

Note 14: Deferred Tax Assets (Net)

` As at 31.03.2016

Particulars

As at 31.03.2015

Deferred Tax Assst a) Depreciation

1,246,299 -

b) Employee Benefits

1,533,029 1,045,137

c) Provision for Non Performing Assets

2,030,598 1,489,468

d) Provision for Standard Assts

1,683,302 1,097,284

e) Income derecognised on Non Performing Assets

3,594,542 2,756,314

Total (A)

10,087,770

6,388,203

Less: Deferred Tax Liability a) Depreciation (B)

- 810,144

Net Deferred Tax Asset (A) - (B)

10,087,770 5,578,059

Note 15 : Long Term Receivables Under Financing Activities

` As at 31.03.2016

Particulars

As at 31.03.2015

Considered Good: A. Secured Loans

1,463,174,307 882,642,145

Total

1,463,174,307

882,642,145

The Long Term Receivables Under Financing Activities includes Non-Performing Loans of Rs.9,903,864 (31-03-2015 - Rs.6,476,422)

95

Annual Report 2015 - 16

Five Star Business Finance Limited Note 16 : Long Term Loans and Advances

` As at 31.03.2016

Particulars

As at 31.03.2015

Unsecured, Considered Good Rental Deposit - To Related Parties

400,000 400,000

- To Others

6,765,650 4,585,000

Security Deposit

2,500,000 2,500,000

Security Deposit – Other NBFCs

- 3,229,167

Others

88,928 57,065

Total

9,754,578

Note 17 : Other Non Current Assets

10,771,232

` As at 31.03.2016

Particulars

As at 31.03.2015

Interest Accrued on Deposits with Banks and NBFCs

617,900 314,464

Total

617,900

`

Note 18 : Current Investments (Valued at Lower of Cost or Net Realisable Value)

As at 31.03.2016

Particulars

314,464

As at 31.03.2015

Investments in Mutual Funds Reliance Liquid Fund - Treasury Plan

40,000,000 -

(Opening as on 01.04.2015 - Nil Units, Additions During F.Y.2015-16 - 77231 units, Redemptions During F.Y.2015-16 - 66396 Units and Closing as on 31.03.2016 - 10835 Units) Reliance Dynamic Bond Fund – Growth Plan

- 1,875,000

(Opening as on 01.04.2015 - 120435 Units, Additions During F.Y.2015-16 - Nil units, Redemptions During F.Y.2015-16 - 120435 Units and Closing as on 31.03.2016 - Nil Units) Total

40,000,000

1,875,000

Aggregate cost of investments - At Cost

40,000,000 1,875,000

- At Market Value (Net Asset Value)

40,037,005 2,288,867

96

Note 19 : Cash and Bank Balances

` As at 31.03.2016

Particulars

As at 31.03.2015

1. Cash and Cash Equivalents: (a) Cash on Hand

3,108,914 5,276,939

(b) Balances with Banks (i) In Current accounts

20,758,596 21,326,368

(ii) In Deposit accounts with less than 3 months maturity (iii) In Unpaid Dividend Accounts

- 250,000,000 790,115 831,776

Total

24,657,625

277,435,083

2. Other Bank Balances: (a) Deposits with Banks: (i) Maturity more than 12 months

6,000,000 9,750,000

Total

30,657,625

Note 20 : Short Term Receivables Under Financing Activities

` As at 31.03.2016

Particulars

287,185,083

As at 31.03.2015

Considered Good: A. Secured Loans

518,079,321 432,502,980

Total

518,079,321 432,502,980

The Short Term Receivables Under Financing Activities includes Non-Performing Loans of Rs.26,200,633 (31-03-2015 - Rs.17,450,382) Note 21 : Short Term Loans and Advances

` As at 31.03.2016

Particulars

As at 31.03.2015

Unsecured, Considered Good Rental Deposit - To Others

520,000 760,000

Branch Opening Advance

414,000 -

Security Deposit – Other NBFCs

3,907,164 12,325,029

Staff Advances

74,339 52,594

Others

1,048,215 1,147,199

Total

5,963,718 97

14,284,822

Annual Report 2015 - 16

Five Star Business Finance Limited Note 22 : Other Current Assets

` As at 31.03.2016

Particulars

As at 31.03.2015

Interest Accrued on Deposits with Banks and NBFCs

476,196 3,754,695

Total

476,196 3,754,695

Note 23 : Revenue from Operations

` 2015 - 2016

Particulars Interest Income

2014 - 2015

410,783,452 309,167,391

Processing Fees

18,309,479 9,491,937

Other operating income

33,725,210 11,228,059

Total

462,818,141 329,887,387

Note 24: Other Income

` 2015 - 2016

Particulars Dividend

2014 - 2015

- 65,869

Interest on Bank Deposits

6,298,469 3,942,541

Interest on NBFC Deposits

813,828 1,636,467

Profit on Redemption of Mutual Fund Units Profit on sale of Tangible Assets

2,513,125 429,606 - 59,371

Other non-operating Income

636,850 15,284

Total

10,262,272 6,149,138

Note 25 : Finance Costs

`

Particulars

2015 - 2016

2014 - 2015

Interest on (i) Bank Loans

56,893,323 28,446,657

(ii) Corporate Loans

43,866,474 49,324,583

(iii) Debentures

20,344,160 13,370,251

(iv) Other Loans

3,379,673 3,244,823

Discounting Charges on Commercial Paper

7,876,782 1,254,218

Other Borrowing Costs

8,368,551 8,070,977

Total

140,728,963 103,711,509 98

Note 26 : Employee Benefit Expenses

`

Particulars

2015 - 2016

Salaries, Commission and Bonus

2014 - 2015

71,572,082 44,330,667

Contribution to Provident Fund, ESI and Gratuity

5,150,276 3,584,047

Staff welfare expenses

1,687,878 936,595

Total

78,410,236 48,851,309

Note 27 : Other Expenses

`

Particulars

2015 - 2016

Rent

2014 - 2015

7,280,517 5,003,695

Electricity Charges

905,136 525,441

Rates and Taxes

463,555 444,556

Communication Expenses

3,220,806 1,976,565

Consultancy Fees

3,104,787 1,876,000

Printing and Stationery

3,126,804 1,746,886

Directors Sitting Fees

250,000 355,000

Repairs and Maintenance

2,329,516 1,196,111

Audit Fees - Statutory Audit

500,000 500,000

- Tax Audit

200,000 200,000

- Other Services

15,000 7,500

Traveling Expenses

713,228 980,390

Insurance

341,422 360,489

Service Tax

6,733,900 3,919,304

Collection Charges

3,751,243 1,456,014

Rating Fees

627,179 625,000

Corporate Social Responsibility Activities

300,000 500,000

Other Donations

5,000 9,500

Miscellaneous Expenses

4,495,716 1,752,599

Total

38,363,809 23,435,050

99

Annual Report 2015 - 16

Five Star Business Finance Limited Note 28 : Provisions, Loan Losses and Other Charges

Particulars

` 2015 - 2016

2014 - 2015

Bad Debts

4,156,197 2,327,387

Provision for Non-Performing Assets

1,485,008 1,347,390

Provision for Standard Assets

1,635,373 771,067

Total

7,276,578 4,445,844

Note 29 : Additional information to the financial statements 29.1. Micro, Small and Medium Enterprises There are no amounts due to Small Scale Industries in terms of “The Micro, Small and Medium Enterprises Development Act, 2006” 29.2. Loan Portfolio and Provision for Standard and Non Performing Assets Asset Classification

Standard Assets

1,945,149,132

Sub-Standard Assets

30,589,676

Doubtful Assets

Loan Outstanding as at 31.03.2015

Provision for Assets as at 31.03.2015

4,863,629 1,291,389,390 3,228,256 3,059,158 18,923,086 1,892,311

5,514,821 2,807,927 4,832,649 2,472,659

Loss Assets Total

Provision for Assets as at 31.03.2016

Loan Outstanding as at 31.03.2016

`

- - - -

1,981,253,629

10,730,714

1,315,145,125

7,593,226

29.3. Disclosure Pursuant to Reserve Bank of India Notification DNBS.200/CGM (PK)-2008 dated August 1, 2008 29.3.1. Capital Adequacy Ratio As at 31.03.2016

Particulars CRAR (%)

As at 31.03.2015

39.14 52.17

CRAR – Tier I Capital (%) 39.14 52.17 CRAR – Tier II Capital (%)

- -

100

29.3.2. Exposure to Real Estate Sector

` in Lakhs As at 31.03.2016

Particulars

As at 31.03.2015

(A) (i) Residential Mortgages Lending fully secured by mortgages on residential property that is or will be occupied by the borrower or that is rented: - Individual housing loans upto Rs. 15 Lakhs

4557.11

2838.31

214.05

243.10

Fund Based

-

-

Non Fund Based

-

-

a. Residential

-

-

b. Commercial Real Estate

-

-

-

-

- Individual housing loans more than Rs. 15 Lakhs (ii) Commercial Real Estates - Lending secured by mortgages on commercial real estates (office building, retain space, multipurpose commercial premises, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisation, development and constructions, etc)

(iii) Investments in Mortgage Backed Securities (MBS) and other securitised exposures

(B) Indirect Exposure Fund based and Non-fund based exposure on National Housing Bank (NHB) and Housing Finance Companies (HFCs).

101

Annual Report 2015 - 16

102

275.42

2339.68

Investments

Advances

Assets

Market Borrowings

/ Financial Institutions/CP

Borrowing from Banks

Liabilities

248.33

Over 1 month to 2 months

322.93

Over 2 months to 3 months

10.00

2117.79

Over 6 months to 1year

2949.12

Over 1 year to 3 years

53.32

82.45 58.61 92.30 0.00

7620.42

- 2771.79

641.43 13151.98

- 1149.44

-

Total

` in Lakhs

1503.56 1963.56

Over 5 years

-

Over 3 years to 5 years

2014 - 2015

0.00 50.00

3450.76

9425.03

1850.42 19812.54

-

-

Total

` in Lakhs Over 5 years

1107.04 2125.32 5673.31 2511.90

1525.93 1012.50 0.00

365.01 361.42 366.55

1714.29

1679.97

Over 3 years to 5 years

119.75 434.78 496.77 0.00

1724.16

Over 3 months to 6 months

37.89 26.09 34.16

204.77

Upto 1 month

1342.79

3324.87

Over 1 year to 3 years

2015 - 2016

1436.61 2261.95 8016.13 4823.99

6.87

1267.61

Over 6 months to 1year

Maturity pattern of certain items of assets and liabilities

400.00 0.00 0.00

6.52

263.54

Over 3 months to 6 months

Investments

22.82

301.56

Over 2 months to 3 months

484.01 466.33 473.10

82.05

247.80

Over 1 month to 2 months

Advances

Assets

Market Borrowings

/ Financial Institutions/CP

Borrowing from Banks

Liabilities

Upto 1 month

29.3.3. Asset Liability Management Maturity pattern of certain items of assets and liabilities

Five Star Business Finance Limited

Note 30 : Disclosure under Accounting Standards 30.1. Employee benefit plans 30.1.a. Defined contribution plans The company makes Provident Fund contributions for qualifying employees to the Regional Provident Fund commissioner. Under the Scheme, the company is required to contribute a specified percentage of the payroll costs to fund the benefits. The company recognised Rs.3,051,745/- (Year ended 31st March 2015 Rs.1,760,064) for Provident fund contribution in the statement of profit and loss. The contributions payable to the scheme by the company are at rates specified in the rules of the scheme. Contribution to

Providend Fund

2015-16

2014-15

3,051,745 1,760,064

Employees State Insurance

713,124

521,502

2013-14

2012-13

2011-12

927,315 534,617 389,775 459,914 248,274 210,228

30.1.b. Defined benefit plans The company’s obligation towards its Gratuity is a Defined Benefit plan. The key assumptions used in the actuarial valuation as provided by independent actuary are as follows: The company does not have a funded gratuity scheme for its employees as at 31st March 2016. Gratuity

`

provision has been made based on the actuarial valuation

As at 31.03.2016

Particulars Present Value of the Obligation at the beginning of the period.

As at 31.03.2015

3,074,836 1,773,685

Interest Cost

238,729 161,405

Service Cost

537,195 306,663

Part Service Cost – (Vested Benefits)

- -

Actuarial Loss/(gain) on obligation (Balancing Figure)

607,093 833,083

Benefits Paid

(28,413) -

Projected Benefit Obligation as at the End of the Year

4,429,440 3,074,836

Changes in the Fair Value of Plan Assets Expected Returns on Plan Assets at the Beginning of the Year Employer’s Contribution

- 28,413 -

Benefits Paid

(28,413) -

Actuarial Gain / (Loss) on plan assets (balancing figure)

- -

Fair Value of Plan Assets at the End of the Year

- -

Amounts Recognised in the Balance Sheet Present Value of Obligation

4,429,440 3,074,836

Fair Value of the Plan Assets at the Year end Liability Recognised in the Balance sheet

- 4,429,440 3,074,836

103

Annual Report 2015 - 16

Five Star Business Finance Limited

` As at 31.03.2016

Particulars

As at 31.03.2015

Expenses recognised in the statement of profit & Loss: Current Service cost

537,195 306,663

Interest Cost

238,729 161,405

Expected Return on Plan Assets

- -

Net Actuarial (Gains) / Losses Recognized in the Year

607,093 833,083

Past Service Cost – Vested Benefits

- -

Expenses recognised in the statement of profit & loss:

1,383,017 1,301,151

Assumptions Discount Rate

7.80% 7.80%

Future Salary Increase

5.00% 5.00%

Attrition Rate

7.00% 7.00%

Expected Rate of Return on Plan Assets

NA NA

Amount for the Current and previous four years are as follows: Particulars

2015-16

Defined Benefit Obligations

2014-15

4,429,440

2013-14

3,074,836

2012-13

1,773,685 1,745,881 2,256,671

Plan Assets - - - Surplus (Deficit)

2011-12

(4,429,440)

(3,074,836)

(1,773,685)

(607,093)

(565,052)

198,878

-

-

(1,745,881) (2,256,671)

Expenses adjustments on plan liabilities

(125,355)

95,216

-

-

Expenses adjustments on plan assets - -

-

30.2. Related Party Transactions 30.2.a. Related Parties: Key Management Personnel: Mr.D. Lakshmipathy, Chairman and Managing Director Relatives of Key Management Personnel: Mr.D. Lakshmipathy

L. Hema

Wife



R. Deenadayalan

Father



D. Varalakshmi

Mother



B. Sudha

Sister

Individual, directly or indirectly, holding more than 20% of the voting power of the company: Mr.D. Lakshmipathy (along with his wife Ms.L. Hema)

104

Companies, directly or indirectly, holding more than 20% of the voting power of the company: Matrix Partners India Investment Holdings II, LLC Subsidiary Company: Five-Star Housing Finance Private Limited

`

30.2.b. Details of related party transactions for the year

Transactions

Key Management Personnel as at 31.03.2016

Key Management Personnel as at 31.03.2015

Relatives of Key Management Personnel as at 31.03.2016

Relatives of Key Management Personnel as at 31.03.2015

Others 31.03.2016

Others 31.03.2015

Expenses: Interest - - 222,187 105,038

- -

Salary 6,021,600 4,216,500 - -

- -

Commission/ Remuneration - 3,000,000 - -

- -

Rent 864,000 864,000 - -

- -

Assets Investment in Subsidiary -

- - - 150,000,000 -

Rent Advance 400,000 400,000 - -

- -

Liabilities Issue of Equity Shares 5,000,000

- - -

- 12,000,000

Premium 60,000,000 - - -

- 144,000,000

Equity Share Capital 25,187,300 19,378,300 21,827,600 21,667,600

39,402,400 39,402,400

Borrowings - - 1,780,000 1,670,000

- -

Receipt of Share

30.3. Operating Lease The company has operating lease agreement primarily for office premises. The lease is for a period of 3 to 9 years. An amount of Rs.72,80,517/- (Previous Year Rs5,003,695/-) was debited to the statement of Profit and Loss towards lease rentals and other charges for the office premises during the current year.

105

Annual Report 2015 - 16

Five Star Business Finance Limited 30.4. Earnings per share

` As at 31.03.2016

Particulars Profit after tax (Rs.)

As at 31.03.2015

134,148,780 99,219,623

Weighted Average Number of Equity Shares - Basic (No.)

10,427,322 9,184,110

- Diluted (No.)

10,427,322 9,184,110

Earnings Per Share (EPS) - Basic (No.)

12.87 10.80

- Diluted (No.)

12.87 10.80

Face Value of Shares (Rs.)

10 10

30.5. Expenditure in foreign currency on payment basis

` As at 31.03.2016

Particulars

As at 31.03.2015

Processing Fee

836,801 -

Reimbursement of expenses

755,696 -

30.6. Contingent liability Contested Claims Not Provided for:

` As at 31.03.2016

Particulars Income Tax issue where the Company is in appeal

As at 31.03.2015

673,698 673,698

Disputed claims against the company lodged by parties under litigation.

5,004,000 5,004,000

30.7. Segment Information The company is primarily engaged in the business of MSME Loans, Housing Loans & Property Loans. All the activities of the Company revolve around the main business. Further, the company does not have any separate geographic segment other than India. As such there are no separate reportable segments as per AS-17 “Segment Reporting” 30.8. Pending Litigations The Pending Litigations as on 31st March 2016 have been compiled by the company and reviewed by Statutory Auditors. The Current position of the litigations has been evaluated and the effect thereof has been disclosed in the financial statements wherever appropriate.

106

30.9. Provision for Loan Accounts Based on the current status of the loan accounts, the company has made adequate provisions for losses, where required 30.10. Capital Commitment Estimated amount of contracts remaining to be executed on capital account is Rs.21,018/- (Net of advances of Rs.19,000/-) 30.11. Corporate Social Responsibility Activities The Company has spent an amount of Rs.300,000/- towards Corporate Social Responsibility activities under section 135 of Companies Act, 2013 in areas covered under setting up oldage home, day care centre and such other facilities for senior citizens. 30.12. Previous Year Figures Previous year’s figures have been regrouped/reclassified wherever necessary to correspond with the current year’s classification / disclosures.

As per our report of even date attached For Brahmayya & Co. Chartered Accountants Firm Registration Number 000511S

For and on behalf of Board of Directors

L. Ravi Sankar Partner

D. Lakshmipathy

B. Haribabu

Chairman & Managing Director

Director

G. Srikanth

V. Nikita

Membership No. 025929 Place : Chennai Date: 24.05.2016

Chief Financial Officer Company Secretary

107

Annual Report 2015 - 16

Five Star Business Finance Limited

SCHEDULE TO THE BALANCE SHEET OF A NON-DEPOSIT TAKING NON-BANKING FINANCE COMANY As required in terms of Paragraph 13 of Non Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 ` Amount Outstanding

Particulars

Amount Overdue

Liabilities Side : 1. Loans and advances availed by the NBFCs* a. Debentures: Secured

320,846,000 -

Unsecured

- -

(Other than falling within the meaning of public deposits)

- -

b. Deferred Credits

- -

c. Term Loans

- -

d. Inter-Corporate loans and borrowings

388,834,435 -

e. Commercial Paper

- -

f. Other Loans (Specify nature) - Bank Borrowings

553,650,795 -

- Loan from Directors / Relatives of Directors

24,230,000 -

Assets Side : 2. Break up of Loans and Advances including bills receivables a.Secured

1,981,327,968

-

18,022,742

-

-

-

b.Unsecured 3. Breakup of Leased Assets and Stock on hire and other assets counting towards AFC activities

I. Lease Assets including lease rentals under sundry debtors

- -

a. Financial Lease

- -

b. Operating Lease

- -

II. Stock on hire including hire charges under sundry debtors

- -

a. Assets on Hire

- -

b. Repossessed Assets

- -

III. Hypothecation loans counting towards AFC activities

- -

a. Loans where assets have been repossessed

- -

b. Loans other than (a) above

- -

108

` Particulars

Cost

Market Value

4. Break up of Investments : Current Investments: 1. Quoted : (i) Shares:

- -

(a) Equity

- -

(b) Preference

- -

(ii) Debentures and Bonds

- -

(iii) Units of Mutual Funds

- -

(iv) Government Securities

- -

2. Unquoted : (i) Shares: (a) Equity :

- -

(b) Preference

- -

(ii) Debentures and Bonds

- -

(iii) Units of Mutual Funds 40,000,000 40,037,005 (iv) Government Securities

- -

Long Term Investments (i) Shares:

- -

(a) Equity

- -

(b) Preference

- -

(ii) Debentures and Bonds

- -

(iii) Units of Mutual Funds

- -

(iv) Government Securities

- -

2. Unquoted : (i) Shares: (a) Equity :

- -

(b) Preference

- -

(ii) Debentures and Bonds

- -

(iii) Units of Mutual Funds - (iv) Government Securities

- -

Total 40,000,000 40,037,005

109

Annual Report 2015 - 16

Five Star Business Finance Limited

5. Borrower group-wise classification of assets financed as in (2) and (3) above

`

Amount Net of Provisions

Category

Secured

Unsecured

a. Subsidiaries

-

-

b. Companies in the same group

-

-

c. Other Related Parties

- -

Total

1. Related Parties

2. Other than related parties

1,981,327,968

18,022,742

1,999,350,709

Total

1,981,327,968

18,022,742

1,999,350,709

Investor group-wise classification of all Investments (Current and long term) in shares and securities :

Market value Break up or fair Value or NAV

Category

`

Book Value (Net of Provisions)

1. Related Parties **

- -

a. Subsidiaries

- -

b. Companies in the same group

- -

c. Other Related Parties

- -

2. Other than related parties

40,037,005 40,000,000

Total

40,037,005

40,000,000

** As per accounting Standards

`

7. Other Informations:

Particulars

Amount

I. Gross non performing assets a. Related parties b. Other than related parties 36,104,497 II. Net Non Performing Assets a. Related parties- b. Other than related parties 30,237,412 III. Assets acquired in satisfaction of debt (during the year)

110

-

CONSOLIDATED FINANCIAL STATEMENTS 111

Five Star Business Finance Limited

Auditor’s Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FIVE-STAR BUSINESS FINANCE LIMITED 1. Report Statements

on

the

Consolidated

Financial

We have audited the accompanying consolidated financial statements of FIVE-STAR BUSINESS FINANCE LIMITED (“the Holding Company”), its subsidiary company, (together referred as “the Group”) which comprise the Consolidated Balance Sheet as at 31st March, 2016, the Consolidated Statement of Profit and Loss, the Consolidated Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information. 2. Management’s Responsibility Consolidated Financial Statements

for

completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error, which have been used for the purpose of preparation of the consolidated financial statements by the Directors of the Holding Company, as aforesaid. 3. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

the

The Holding Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these consolidated financial statements that give a true and fair view of the consolidated financial position, consolidated financial performance and consolidated cash flows of the Group in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. The respective Board of Directors of the companies included in the Group are responsible for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Group and for preventing and detecting frauds and other irregularities; the selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and 112

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Holding Company’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Holding Company’s Board of Directors,

as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence obtained by us is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements. 4. Opinion In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: a) in the case of the Balance Sheet, of the state of affairs of the Group as at March 31, 2016; b) in the case of the Statement of Profit and Loss, of the profit for the year ended onthat date; and c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date. 5. Report on Other Legal and Regulatory Requirements (a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. (b) In our opinion, proper books of account as required by law relating to preparation of the aforesaid consolidated financial statements have been kept so far as it appears from our examination of those books and the reports of the other auditors. (c) The Consolidated Balance Sheet, the Consolidated Statement of Profit and Loss, and the Consolidated Cash Flow Statement dealt with by this Report are in agreement with the relevant books of account maintained for the purpose of preparation of the consolidated financial statements.

113

(d) In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. (e) On the basis of the written representations received from the directors of the Holding Company as on 31st March, 2016 taken on record by the Board of Directors of the Holding Company and its subsidiary company none of the directors of the Holding Company and its subsidiary company incorporated in India are disqualified as on 31st March, 2016 from being appointed as a director in terms of Section 164 (2) of the Act. (f) With respect to the adequacy of the internal financial controls over financial reporting of the Group and the operating effectiveness of such controls, refer to our “Annexure A” (g) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us: i. the Consolidated financial statements disclose the effect of pending litigations on the consolidated financial position of the Group– as mentioned in Note 29.6; ii. based on the current assessment of the long term contracts, in the ordinary course of business, the Group has made provision for losses as explained in Note 29.7 of the Notes to the Accounts. The company did not enter into any derivative contracts during the year. iii. there has been no delay in transferring the amounts required to be transferred to the Investor Education and Protection Fund. For BRAHMAYYA & Co Chartered Accountants Firm Regn. No.000511S L.Ravi Sankar Chennai Partner th 24 May 2016 Membership No. 025929 Annual Report 2015 - 16

Five Star Business Finance Limited “ANNEXURE A” TO THE AUDITORS’ REPORT REFERRED TO IN PARAGRAPH 5 OF OUR REPORT OF EVEN DATE

Auditors’ Responsibility

Report on the Internal Financial Controls under Clause (i) of Sub-Section 3 of Section 143 of the Companies, Act, 2013 (“the Act”) In conjunction with our audit of the consolidated financial statements of the Company as of and for the year ended March 31, 2016, we have audited the internal financial controls over financial reporting of Five-Star Business Finance Limited (hereinafter referred to as “the Holding Company”) and its subsidiary company, which are companies incorporated in India, as of that date. Management’s Responsibility Financial Controls

for

Internal

The respective Board of Directors of the Holding company and its subsidiary company, which are companies incorporated in India, are responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the “Institute of Chartered Accountants of India (ICAI)”. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to the respective company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

114

Our responsibility is to express an opinion on the Company’s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the “Guidance Note”) issued by the ICAI and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects. Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting A company’s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Opinion In our opinion, the Holding Company and its subsidiary company, which are companies incorporated in India, have, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

Inherent Limitations of Internal Financial Controls Over Financial Reporting Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Chennai 24th May 2016 115

For BRAHMAYYA & Co Chartered Accountants Firm Regn. No.000511S L.Ravi Sankar Partner Membership No. 025929 Annual Report 2015 - 16

Five Star Business Finance Limited

Consolidated Balance Sheet as at 31st March 2016

`

As at 31.03.2016

As at 31.03.2015

Particulars

Note No.

A EQUITY AND LIABILITIES 1. Shareholder’s funds (a) Share Capital 3 (b) Reserves and surplus 4 2. Non-current liabilities (a) Long term borrowings 5 (b) Other Long term Liabilities 6 (c) Long term provisions 7 3. Current liabilities (a) Short Term borrowings 8 (b) Trade payables: Total outstanding dues of (A) Micro Enterprises & Small Enterprises (B) Creditors other than Micro enterprises & small enterprises 9 (c) Other current liabilities 10 (d) Short term provisions 11

107,000,000 102,000,000 807,722,895 610,515,444 914,722,895 712,515,444 800,228,098 347,201,603 121,694 2,370,412 8,841,955 6,029,738 809,191,747 355,601,753 138,215,578

157,454,001

- 5,729,303 5,642,754 371,251,439 385,044,341 13,157,303 30,424,762 528,353,623 578,565,858

Total 2,252,268,265 1,646,683,055 B ASSETS 1 Non- current assets (a) Fixed assets (i) Tangible assets 12 18,430,760 7,305,184 (ii) Intangible assets 12 657,127 469,391 (b) Non-Current Investments 13 355,615 (c) Deferred tax assets(net) 14 10,087,770 5,578,059 (d) Long term receivables under financing activity 15 1,463,174,307 882,642,145 (e) Long term loans and advances 16 9,754,578 10,771,232 (f) Other Non Current Assets 17 2,255,336 314,464 1,504,715,493 907,080,475 2 Current assets (a) Current Investments 18 40,000,000 1,875,000 (b) Cash and Bank Balances 19 178,599,823 287,185,083 (c) Short term receivables under financing activity 20 518,079,321 432,502,980 (d) Short term loans and advances 21 5,963,718 14,284,822 (e) Other Current Assets 22 4,909,910 3,754,695 747,552,772 739,602,580 Total Significant Accounting Policies and Notes to the Accounts As per our report of even date attached For Brahmayya & Co. Chartered Accountants Firm Registration Number 000511S

2,252,268,265 1,646,683,055

2 to 29

For and on behalf of Board of Directors

L. Ravi Sankar Partner Membership No. 025929 Place : Chennai Date: 24.05.2016 116

D. Lakshmipathy Chairman & Managing Director

B. Haribabu Director

G. Srikanth Chief Financial Officer

V. Nikita Company Secretary

Consolidated Statement of Profit & Loss for the Year ended 31st March 2016 ` Particulars

Note No.

2015 - 2016

2014 - 2015

Revenue from Operations

23

462,818,141

329,887,387

Other income

24

15,188,621

6,149,138

478,006,762

336,036,525

Revenue

Total Revenue Expenses Finance costs

25

140,728,963

103,711,509

Employee benefit expenses

26

78,410,236

48,851,309

Other expenses

27

38,383,266

23,435,050

Provision, loan loss and other charges

28

7,276,578

4,445,844

Depreciation

12

5,113,527 3,618,843

Preliminary Expenses written off

409,359

-

Total Expenses

270,324,929

184,062,555

Profit Before Tax

207,681,833 151,973,970

Tax expenses Current tax expenses

74,984,093

54,694,831

Deferred tax

(4,509,711)

(1,940,484)

70,474,382 52,754,347

Profit for the Year

137,207,451

99,219,623

Earnings per share - (Refer Note 29.4) Weighted Average number of Shares (Face Value Rs.10/- per share) 10,427,322 9,184,110 Basic (of Rs.10/- each)

13.16

10.80

Diluted

13.16

10.80

Significant Accounting Policies and Notes to the Accounts As per our report of even date attached For Brahmayya & Co. Chartered Accountants Firm Registration Number 000511S

2 to 29

For and on behalf of Board of Directors

L. Ravi Sankar Partner Membership No. 025929 Place : Chennai Date: 24.05.2016

117

D. Lakshmipathy Chairman & Managing Director

B. Haribabu Director

G. Srikanth Chief Financial Officer

V. Nikita Company Secretary

Annual Report 2015 - 16

Five Star Business Finance Limited

Consolidated Cash Flow Statement for the Year ended 31st March 2016 ` Year ended 31.03.2016

Particulars

Year ended 31.03 2015

A) CASH FLOW FROM OPERATING ACTIVITIES Net Profit Add: Provision for Taxation Add: Preliminary Expenses written off

137,207,451

99,219,623

70,474,382

52,754,347

409,359

-



208,091,192 151,973,970

Add: Financial Expenses

140,728,963



103,711,510 348,820,155 255,685,480

Depreciation

5,113,527 3,618,843

Provision against Non - Performing assets

1,485,008

1,347,390

General Provision on Standard Assets

1,635,373

771,067

Provision for Gratuity

1,354,604

1,301,151

-

(59,371)

(Profit)/ loss on sale of Fixed Assets

Operating Profit Before Working Capital Changes 358,408,667 262,664,560 (Increase) Decrease in Loans and Advances (Increase) Decrease in Other Receivables (Increase) Decrease in Other Current Assets (Increase) Decrease in Other Non Current Assets Increase (Decrease) in Current Liabilities Preliminary Expenses Paid Increase (Decrease) in Other Current Liabilities

(666,108,504)

(307,135,246)

9,337,758

2,550,426

(1,155,215)

(2,135,686)

(303,436)

360,856

196,418

4,062,706

2,046,795

-

(61,437)

(1,418,681)



(660,141,211) (303,715,625)



(301,732,544) (41,051,065)

Financial Expences Direct Taxes Paid

(133,692,818)

(106,988,787)

(74,017,131)

(50,330,536)



(207,709,949) (157,319,323)

Net Cash from Operating Activities (A)

(509,442,493)

(198,370,388)

(16,426,838)

(4,214,869)

-

151,500

3,750,000

(5,000,000)

(38,125,000)

5,733,257

(355,615)

-

(51,157,453)

3,330,112

B) CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets Sale of Fixed Assets Investments in Fixed Deposit (Purchase) / Sale of Current Investments (Purchase) / Sale of Non Current Investments Net Cash from Investing Activities (B)

118

` Year ended 31.03.2016

Particulars

Year ended 31.03 2015

C) CASH FLOW FROM FINANCING ACTIVITIES Long Term & Medium Term Increase in Share Capital

5,000,000

12,000,000

60,000,000

144,000,000

Proceeds from Issue of Debentures

300,000,000

17,500,000

Debentures Redeemed

(64,970,000)

(68,179,000)

Increase (Decrease) in Term Loans from Banks & Others

194,495,495

156,646,700

(4,811,000)

1,066,000

(67,123,218)

67,123,218

53,070,599

60,013,015

Dividend paid (Including Corporate Dividend Tax)

(19,897,189)

(15,191,401)

Net Cash from Financing Activities (C)

455,764,687 374,978,532

Increase in Share Premium

Increase (Decrease) in Loan from Directors Increase (Decrease) in Other Borrowings Short Term Increase (Decrease) in Bank Borrowings

Net Increase in Cash and Cash Equivalents (A) + (B) + (C) (104,835,259)

173,278,032

Cash and Cash Equivalents at the Beginning of the Year 277,435,082

104,157,050

Cash and Cash Equivalents at the End of the Year 172,599,823

277,435,082

Components of Cash and Cash Equivalents at the end of the Year Cash on Hand

3,108,914

5,276,939

Cash with Scheduled Banks

169,490,909

272,158,143

Cash and Cash Equivalents

172,599,823

277,435,082

As per our report of even date attached For Brahmayya & Co. Chartered Accountants Firm Registration Number 000511S

For and on behalf of Board of Directors

L. Ravi Sankar Partner Membership No. 025929 Place : Chennai Date: 24.05.2016

119

D. Lakshmipathy Chairman & Managing Director

B. Haribabu Director

G. Srikanth Chief Financial Officer

V. Nikita Company Secretary

Annual Report 2015 - 16

Five Star Business Finance Limited 1. Corporate information Five-Star Business Credits Limited (the Company) is a Registered Non Banking Finance Company (NBFC) with Reserve Bank of India (RBI). The Company follows RBI guidelines applicable for NBFCs. The Company is a public limited company with Registered & Head Office at Kilpauk, Chennai. The Company has been in business for 32 years providing finance for Small Business Loans and for House renovations/extensions. 2. Significant accounting policies 2.1. Basis of accounting and preparation of financial statements

Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known / materialise. 2.3. Depreciation / Amortisation Depreciation on Fixed Assets is provided in accordance with useful life specified in the schedule II of the Companies Act, 2013. Depreciation for additions and deletions are provided on a pro-rata basis. Intangible Assets are amortised over the expected useful life of 5 years. 2.4. Revenue recognition

The financial statements are prepared under the historical cost convention in accordance with the generally accepted accounting principles in India, Accounting Standards (AS) notified by the Companies (Accounting Standards) Rules, 2006 (as amended) / issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 2013. The Parent Company, Five-Star Business Credits Limited, follows the prudential norms for income recognition, asset classification and provisioning as prescribed by the Reserve Bank of India for Non Deposit Taking Non Banking Finance Companies (NBFC-ND). The subsidiary, Five-Star Housing Finance Private Limited, follows the Directions prescribed by the National Housing Bank (NHB) for Housing Finance Companies. 2.2. Use of estimates The preparation of the financial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The

120

Interest Income is recognised under the Internal Rate of Return method to provide a constant periodic rate of return on net investment outstanding on the Loan contracts. Income on Non-Performing assets is recognised only when realised and any interest accrued until the asset became a Non performing Asset and remaining overdue is de-recognised by reversing the interest income. Processing Fees, Penal Interest, Cheque bounce charges and other charges are recognised as income upon certainty of receipt Income and expenditure from other activities and services are recongnised on accrual basis. 2.5. Tangible fixed Assets Fixed assets are stated at cost less accumulated depreciation. Cost includes taxes, duties, freight and incidental expense related to the acquisition and installation of the asset.

2.6. Foreign translations

currency

transactions

and

Transactions in foreign currencies entered into by the Company are accounted at the exchange rates prevailing on the date of the transaction or at rates that closely approximate the rate at the date of the transaction. 2.7. Investments Investments are classified as Current and Non Current based on their nature and intended holding period. Non Current Investments are valued at cost, Current Investments are valued at lower of cost or net realisable value. 2.8. Employee benefits Employee benefits include provident fund, gratuity and other employee benefits. Defined contribution plans Contributions to the Employees Provident Fund Scheme maintained by the Central Government and the Company’s contribution to the fund are charged to the revenue. Defined benefit plans For defined benefit plans in the form of gratuity which is non funded, the cost of providing benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each Balance Sheet date. Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, as reduced by the fair value of scheme assets.

121

Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the schemes. 2.9. Leases Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on accrual basis. 2.10. Earnings per share Basic earnings per share is computed by dividing the profit / (Loss) after tax (including the post tax effect of extraordinary item, if any) by the weighted average number of equity shares outstanding during the year. 2.11. Taxes on Income Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the provisions of the Income Tax Act, 1961. Deferred tax is recognized on timing differences, being the difference between taxable and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. 2.12. Impairment of assets The carrying amounts of assets are reviewed at each Balance Sheet date to determine whether there is any indication of impairment of the carrying amount of the Company’s assets. If any indication exists, an asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of the asset exceeds the recoverable amount.

Annual Report 2015 - 16

Five Star Business Finance Limited 2.13. Provisions and contingencies

2.14. Basis of Consolidation

Provisions are recognised only when the Company has present or legal obligations as a result of past events for which it is probable that an outflow of economic benefit will be required to settle the transaction and when a reliable estimate of the amount of obligation can be made. Contingent liability is disclosed for (i) Possible obligation which will be confirmed only by future events not wholly within the control of the Company or (ii) Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognized in the financial statements since this may result in the recognition of income that may never be realized.

2.14.a. The financial statements of the Subsidiary Company “Five-Star Housing Finance Private Limited” have been consolidated on the basis of AS21 given by ICAI.

122

2.14.b. The Financial Statements of the Parent Company and its Subsidiary Company have been consolidated on a line by line basis by adding together the book values of like items of assets, liabilities, income and expenses after fully eliminating intra group balances and intra group transactions resulting in realised profits / losses.

Notes forming part of Financial Statements Note 3 Share Capital Particulars

As at 31.03.2016 No. of ` Shares

As at 31.03.2015 No. of Shares

`

(a). Authorised Equity Shares of Rs.10 each

12,000,000

120,000,000

12,000,000

120,000,000

10,700,000

107,000,000

10,200,000

102,000,000

(b) Issued, Subscribed and fully paid up Equity Shares of Rs.10 each Notes: (i) Reconciliation of the number of shares and amount outstanding at the beginning and at the end of the reporting year

As at 31.03.2016 Particulars

No. of Shares

As at 31.03.2015 `

No. of Shares

`

Equity Shares Opening Balance Add - Shares Issued During the Year Closing Balance

10,200,000

102,000,000

9,000,000

90,000,000

500,000

5,000,000

1,200,000

12,000,000

10,700,000 107,000,000 10,200,000 102,000,000

123

Annual Report 2015 - 16

Five Star Business Finance Limited

Note 4 Reserves and Surplus

` As at 31.03.2016

Particulars (a) Securities premium account Opening balance Add: Premium on shares issued during the year Closing Balance

As at 31.03.2015

349,905,000 60,000,000 409,905,000

205,905,000 144,000,000 349,905,000

(b) Statutory Reserve Balance at the beginning of the year Add: Amount transferred from surplus In the statement of profit and loss Closing Balance

69,700,000 27,560,000 97,260,000

49,716,698 19,983,302 69,700,000

(c) General Reserve Balance at the beginning of the year Add: Amount transferred from surplus In the statement of profit and loss Closing Balance

38,400,000 13,860,000 52,260,000

28,400,000 10,000,000 38,400,000

(d) Surplus in the statement of Profit and Loss Balance at the beginning of the year Less: Transition Reserve on Depreciation under Companies Act, 2013 Add: Profit for the year Less: Appropriations Transfer to Statutory Reserve Transfer to General Reserve Dividend Distribution tax on Dividend Net Surplus in the statement of Profit and Loss Total Reserves and surplus

152,510,444 103,211,835 - 40,523 152,510,444 103,171,312 137,207,451 99,219,623 27,560,000 19,983,302 13,860,000 10,000,000 - 16,531,397 - 3,365,792 248,297,895 152,510,444 807,722,895 610,515,444

`

Note 5 : Long Term Borrowings

As at 31.03.2016

Particulars

As at 31.03.2015

A. Secured: a. Redeemable Non Convertible Debentures

302,500,000

23,839,000

- From Banks

234,707,744

176,688,952

- From Other Parties

259,812,354

123,335,651

3,208,000

23,338,000

b. Term Loans:

B. Unsecured: a. Loan from Related Parties

800,228,098 347,201,603 124

Note 6 : Other Long Term Liabilities

` As at 31.03.2016

Particulars

As at 31.03.2015

Interest accrued but not due on borrowings

121,694

2,370,412

Total

121,694 2,370,412

`

Note 7 : Long Term Provisions

As at 31.03.2016

Particulars

As at 31.03.2015

Provision for Employee Benefits Provision for Gratuity

4,127,375

2,854,745

Provision for Standard Assets

3,633,176

2,190,625

Provision for Non-Performing Assets

1,081,404

984,368

Total

8,841,955 6,029,738

Other Provisions

Note 8 : Short Term Borrowings

` As at 31.03.2016

Particulars

As at 31.03.2015

A. Secured: a. Cash Credit facilities with Scheduled Banks

138,215,578

90,330,783

-

67,123,218

B. Unsecured: a. Commercial Papers Total

138,215,578 157,454,001

125

Annual Report 2015 - 16

Five Star Business Finance Limited

`

Note 9 : Trade Payables

As at 31.03.2016

Particulars

As at 31.03.2015

Total outstanding dues of creditors other than micro enterpries and small enterprises

5,729,303

5,642,754

Total

5,729,303 5,642,754

`

Note 10 : Other Current Liabilities

As at 31.03.2016

Particulars

As at 31.03.2015

Current Maturities of Long Term Borrowings - from Banks

180,727,472

129,884,413

- from Other Parties

129,022,081

174,679,337

On Debentures

17,275,000

60,906,000

On Loan from Directors

20,822,000

5,503,000

Interest accrued but not due on borrowings

17,666,447

8,381,583

790,115

831,776

1,071,000

1,317,000

Interest accrued on unpaid matured Debentures

286,338

300,669

Unpaid Loan from Directors

200,000

41,000

54,000

14,107

3,336,986

3,185,456

Unclaimed Dividend Unpaid matured debentures

Interest accrued on unpaid Loan from Directors Statutory due Payable Total

371,251,439 385,044,341

`

Note 11 : Short Term Provisions

As at 31.03.2016

Particulars

As at 31.03.2015

Provision for Employee Benefits Provision for Gratuity

302,065

220,091

Provision for Standard Assets

1,230,453

1,037,631

Provision for Non-Performing Assets

4,785,681

3,397,709

Proposed Dividend - Equity

-

16,531,397

Provision for Distribution tax on Dividend

-

3,365,792

6,839,104

5,872,142

Other Provisions

Provision for Income Tax Total

13,157,303 30,424,762

Provision for Income Tax comprises net off TDS and Advance Tax Rs. 122,347,185/ (31.03.2015 – Rs.85,500,679/-)

126

127

Annual Report 2015 - 16

Total Previous Year

17,488,216 13,775,368

(II) Intangible Assets Computer Software 837,903

Total

16,650,313

Balance as at 01.04.2015 For the Year

32,745,995 9,345,129 4,970,106

9,602,795 2,148,791 1,200,427

15,227,466 3,962,149 2,047,176 6,256,687 2,675,171 1,366,879 355,624 559,018 1,659,047

Balance as at 31.03.2016

33,915,054 9,713,641 5,113,527 17,488,216 6,443,301 3,618,843

Balance Balance as at as at 31.03.2016 31.03.2016

-

- 14,827,168 19,087,887 61,389 409,892 9,713,641 7,774,575

- 511,933 657,127

7,774,575 7,332,067

469,391

7,305,184 - 14,315,235 18,430,760 -

-

1,614,004

4,173,973 1,296,816 220,391

Balance as at 31.03.2015

744,405 914,642 - - 3,349,218 6,253,577

- 6,009,325 9,218,141 - 4,042,050 2,214,637

Deduction

Net Block

- - - -

Transition Reverse

Depreciation

- 1,169,059 368,512 143,421

-

- 16,426,838 502,021 4,214,869

331,156

16,095,682

5,840,000

3,762,795

Vehicles

- - - -

Deletion

7,091,344 2,284,700 879,638

Addition

(I) Tangible Assets Furniture & Fixtures 8,136,122 3,971,987 Computers 779,409 Office Equipments

Balance as at 01.04.2015

Gross Block

Note 12 : Fixed Assets

Five Star Business Finance Limited

`

Note 13 : Non-current Investments

As at 31.03.2016

Particulars

As at 31.03.2015

Investment Property

355,615 -

Total

355,615 -

`

Note 14: Deferred Tax Assets (Net)

As at 31.03.2016

Particulars

As at 31.03.2015

Deferred Tax Assst a) Depreciation

1,246,299 -

b) Employee Benefits

1,533,029 1,045,137

c) Provision for Non Performing Assets

2,030,598 1,489,468

d) Provision for Standard Assts

1,683,302 1,097,284

e) Income derecognised on Non Performing Assets

3,594,542 2,756,314



Total (A)

10,087,770

6,388,203

Less: Deferred Tax Liability a) Depreciation (B) Net Deferred Tax Asset



- 810,144

(A) - (B)

10,087,770 5,578,059

`

Note 15 : Long Term Receivables Under Financing Activities

As at 31.03.2016

Particulars

As at 31.03.2015

Considered Good: A. Secured Loans

1,463,174,307 882,642,145

Total

1,463,174,307

128

882,642,145

`

Note 16 : Long Term Loans and Advances

As at 31.03.2016

Particulars

As at 31.03.2015

Unsecured, Considered Good Rental Deposit - To Related Parties

400,000 400,000

- To Others

6,765,650 4,585,000

Security Deposit

2,500,000 2,500,000

Security Deposit – Other NBFCs

- 3,229,167

Others

88,928 57,065

Total

9,754,578

10,771,232

`

Note 17 : Other Non Current Assets

As at 31.03.2016

Particulars Interest Accrued on Deposits with Banks and NBFCs

As at 31.03.2015

617,900 314,464

Unamortised Preliminary Expenses

1,637,436 -

Total

2,255,336

`

Note 18 : Current Investments (Valued at Lower of Cost or Net Realisable Value)

As at 31.03.2016

Particulars

314,464

As at 31.03.2015

Investments in Mutual Funds Reliance Liquid Fund - Treasury Plan Reliance Dynamic Bond Fund – Growth Plan Total

40,000,000 - 1,875,000 40,000,000

1,875,000

Aggregate cost of investments - At Cost

40,000,000 1,875,000

- At Market Value (Net Asset Value)

40,037,005 2,288,867

129

Annual Report 2015 - 16

Five Star Business Finance Limited

`

Note 19 : Cash and Bank Balances

As at 31.03.2016

Particulars

As at 31.03.2015

1. Cash and Cash Equivalents: (a) Cash on Hand

3,108,914 5,276,939

(b) Balances with Banks (i) In Current accounts

23,700,794 21,326,368

(ii) In Deposit accounts with less than 3 months maturity (iii) In Unpaid Dividend Accounts

145,000,000 250,000,000 790,115 831,776

Total

172,599,823

277,435,083

2. Other Bank Balances: (a) Deposits with Banks: (i) Maturity more than 12 months

6,000,000 9,750,000

Total

178,599,823

Note 20 : Short Term Receivables Under Financing Activities

` As at 31.03.2016

Particulars

287,185,083

As at 31.03.2015

Considered Good: A. Secured Loans

518,079,321 432,502,980

Total

518,079,321 432,502,980

`

Note 21 : Short Term Loans and Advances

As at 31.03.2016

Particulars

As at 31.03.2015

Unsecured, Considered Good Rental Deposit - To Others

520,000 760,000

Branch Opening Advance

414,000 -

Security Deposit – Other NBFCs

3,907,164 12,325,029

Staff Advances

74,339 52,594

Others

1,048,215 1,147,199

Total

5,963,718

130

14,284,822

`

Note 22 : Other Current Assets

As at 31.03.2016

Particulars

As at 31.03.2015

Interest Accrued on Deposits with Banks and NBFCs

4,909,910 3,754,695

Total

4,909,910 3,754,695

`

Note 23 : Revenue from Operations

Particulars

2015 - 2016

Interest Income

2014 - 2015

410,783,452 309,167,391

Processing Fees

18,309,479 9,491,937

Other operating income

33,725,210 11,228,059

Total

462,818,141 329,887,387

`

Note 24: Other Income

Particulars

2015 - 2016

Dividend

2014 - 2015 - 65,869

Interest on Bank Deposits

11,224,818 3,942,541

Interest on NBFC Deposits

813,828 1,636,467

Profit on Redemption of Mutual Fund Units

2,513,125 429,606

Profit on sale of Tangible Assets

- 59,371

Other non-operating Income

636,850 15,284

Total

15,188,621 6,149,138

`

Note 25 : Finance Costs

Particulars

2015 - 2016

2014 - 2015

Interest on (i) Bank Loans

56,893,323 28,446,657

(ii) Corporate Loans

43,866,474 49,324,583

(iii) Debentures

20,344,160 13,370,251

(iv) Other Loans

3,379,673 3,244,823

Discounting Charges on Commercial Paper

7,876,782 1,254,218

Other Borrowing Costs

8,368,551 8,070,977

Total

140,728,963 103,711,509

131

Annual Report 2015 - 16

Five Star Business Finance Limited

`

Note 26 : Employee Benefit Expenses

Particulars

2015 - 2016

Salaries, Commission and Bonus

2014 - 2015

71,572,082 44,330,667

Contribution to Provident Fund, ESI and Gratuity

5,150,276 3,584,047

Staff welfare expenses

1,687,878 936,595

Total

78,410,236 48,851,309

`

Note 27 : Other Expenses

2015 - 2016

Particulars Rent

2014 - 2015

7,280,517 5,003,695

Electricity Charges

905,136 525,441

Rates and Taxes

463,555 444,556

Communication Expenses

3,220,806 1,976,565

Consultancy Fees

3,104,787 1,876,000

Printing and Stationery

3,127,754 1,746,886

Directors Sitting Fees

250,000 355,000

Repairs and Maintenance

2,329,516 1,196,111

Audit Fees - Statutory Audit

511,450 500,000

- Tax Audit

200,000 200,000

- Other Services

15,000 7,500

NHB Application Fees

10,000 -

Traveling Expenses

713,228 980,390

Insurance

341,422 360,489

Service Tax

6,733,900 3,919,304

Collection Charges

3,751,243 1,456,014

Rating Fees

627,179 625,000

Corporate Social Responsibility Activities

300,000 500,000

Other Donations

5,000 9,500

Miscellaneous Expenses

4,495,716 1,752,599

Total

38,386,266 23,435,050

`

Note 28 : Provisions, Loan Losses and Other Charges

2015 - 2016

Particulars

2014 - 2015

Bad Debts

4,156,197 2,327,387

Provision for Non-Performing Assets

1,485,008 1,347,390

Provision for Standard Assets

1,635,373 771,067

Total

7,276,578 4,445,844 132

Note 29 : General 29.1. During the Financial Year the company has incorporated a wholly owned subsidiary company “FiveStar Housing Finance Private Limited”, which is in the business of Housing Finance. 29.2.

Additional information as required under schedule III to the Companies Act, 2013 Particulars Name of the Entity

Net Assets i.e. total assets minus total liabilities As a percentage of consolidated assets

Amount `

Share in Profit or Loss As a percentage of consolidated Profit or Loss

Amount `

Parent - Five-Star Business Credits Limited

- 911,664,223

- 134,148,780

- 150,000,000

-

Less: Investments made in subsidiary Company



83.27 761,664,223

-

100.00 134,148,780

Subsidiary - Indian Five-Star Housing Finance Private Limited

Total

16.73

153,058,671

83.27 914,722,894

133

0.00

0

100.00 134,148,780

Annual Report 2015 - 16

Five Star Business Finance Limited

29.3. Related Party Transactions 29.3.a. Related Parties: Key Management Personnel: Mr.D. Lakshmipathy, Chairman and Managing Director Relatives of Key Management Personnel: Mr.D. Lakshmipathy L. Hema R. Deenadayalan D. Varalakshmi B. Sudha

Wife Father Mother Sister

29.3.b. Details of related party transactions for the year

Transactions

Key Management Personnel as at 31.03.2016 `

Key Management Personnel as at 31.03.2015 `

Relatives of Key Management Personnel as at 31.03.2016 `

Relatives of Key Management Personnel as at 31.03.2015 `

Others 31.03.2015 `

Others 31.03.2016 `

Expenses: Interest - - 222,187 105,038

- -

Salary 6,021,600 4,216,500 - -

- -

Commission /Remuneration - 3,000,000 - - Rent 864,000

864,000 - -

- -

- -

Assets Investment in Subsidiary - - - - 150,000,000 Rent Advance 400,000 400,000 - -

- -

Liabilities Issue of Equity Shares 5,000,000 - - -

- 12,000,000

Receipt of Share Premium 60,000,000

- - -

- 144,000,000

Capital 25,187,300 19,378,300 21,827,600 21,667,600

39,402,400 39,402,400

Borrowings - - 1,780,000 1,670,000

- -

Equity Share

134

29.4. Earnings per share

`

Particulars

2015 - 2016

Profit after tax (Rs.)

137,207,451

2014 - 2015 99,219,623

Weighted Average Number of Equity Shares - Basic (No.)

10,427,322 9,184,110

- Diluted (No.)

10,427,322 9,184,110

Earnings Per Share (EPS) - Basic (No.)

13.16 10.80

- Diluted (No.)

13.16 10.80

Face Value of Shares (Rs.)

10 10

29.5. Contingent liability Contested Claims Not Provided for:

` As at 31.03.2016

Particulars Income Tax issue where the Company is in appeal

As at 31.03.2015

673,698 673,698

Disputed claims against the company lodged by parties under litigation.

5,004,000 5,004,000

29.6. Pending Litigations The Pending Litigations as on 31st March 2016 have been compiled by the company and reviewed by Statutory Auditors. The Current position of the litigations has been evaluated and the effect thereof has been disclosed in the financial statements wherever appropriate. 29.7. Provision for Loan Accounts Based on the current status of the loan accounts, the company has made adequate provisions for losses, where required

135

Annual Report 2015 - 16

Five Star Business Finance Limited

29.8. Previous Year Figures Previous year’s figures have been regrouped/reclassified wherever necessary to correspond with the current year’s classification / disclosures.

As per our report of even date attached For Brahmayya & Co. Chartered Accountants Firm Registration Number 000511S L. Ravi Sankar

D. Lakshmipathy

B. Haribabu

Partner

Chairman & Managing Director

Director

Place : Chennai

G. Srikanth

V. Nikita

Date: 24.05.2016

Chief Financial Officer

Company Secretary

Membership No. 025929

136

FORM AOC - 1 (Pursuant to first proviso to sub-section (3) of section 129 read with rule 5 of Companies (Accounts) Rules, 2014) Statement containing salient features of the financial statement of subsidiary Part - A: Subsidiary Sl. No.

Particulars

` Details

1.

Name of the subsidiary

Five-Star Housing Finance Private Limited

2.

Reporting period for the subsidiary concerned, if different



from the holding company’s reporting period NA

3.

Reporting currency and exchange rate as on the last date



of the relevant Financial year in case of foreign subsidiaries NA

4.

Share Capital 150,000,000

5.

Reserves & Surplus 3,058,671

6.

Total Assets 154,013,348

7.

Total Liabilities 954,677

8. Investments NIL 9. Turnover NIL 10. Profit before taxation 4,494,533 11. Provision for taxation 1,435,862 12. Profit after taxation 3,058,671 13. Proposed dividend NIL 14. % of shareholding 100%

137

Annual Report 2015 - 16

Five Star Business Finance Limited No 39, Outer Circular road, Kilpauk Garden Colony, Kilpauk, Chennai 600010 Phone +91 44 2346 0963 www.fivestargroup.in 138