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Internal Guidelines on Corporate Governance

CORPORATE GOVERNANCE PHILOSOPHY

At Shubham Housing Development Finance Company Limited (“the Company” or “SHDFC”), we believe that sound governance practices are the bedrock for the functioning of the Company and for creation of value for its stakeholders on a sustainable and long term basis. This philosophy guides us in maintaining an ethical framework within which we operate.

In order to adopt best practices and greater transparency in the operations of the Company and in compliance with the Notification issued by the National Housing Board (NHB) vide Notification No. NHB.HFC.CG-DIR.1/MD&CEO/2016 dated 9th February 2017 read with Circular No. NHB (ND)/DRS/Policy Circular No.79/2016-17 dated 27th April 2017, the Company has framed these Internal Guidelines on Corporate Governance

BOARD OF DIRECTORS

As per Article 39 of the Articles of Association of the Company, the Board of Directors shall comprise of not more than 9 (nine) members and out of which 2 (two) members shall be Independent Directors and 1 (one) member may be a nominee of a bank or other debt stakeholder in the Company (“Bank Nominee”), as required

The Board of Directors of the Company shall have an optimum combination of Executive, Non-Executive, Independent and Woman Directors, as per the Guidelines/ Regulations applicable to the Company.

The Directors shall possesses the requisite qualifications and experience in affordable housing, general corporate management, banking, finance, marketing and other allied fields which enable them to enhance their contribution effectively to the Company in their capacity as Directors of the Company.

A Director shall not hold the office of Director in more than 20 companies and the maximum number of directorships in public companies shall not be more than 10. All the Directors shall make the necessary annual disclosure regarding their change in concern or interest in any company or companies or bodies corporate, firms, or other association of individuals including shareholding, directorships and committee positions and shall intimate changes as and when they take place.

The Directors shall act in accordance with the duties as provided under the Companies Act, 2013 (“the Act”) and the Independent Directors shall abide by the Code for Independent Directors under Schedule IV of the Act.

The Board shall provide the overall strategic direction and periodically review strategy and business plans, annual operating and capital expenditure budgets and oversee the actions and results of the management to ensure that the various objectives of enhancing stakeholders’ value are met. The Board shall also, inter-alia, review and consider the investment and exposure limits, compliance report(s) of all laws applicable to the Company, as well as steps taken to rectify instances of non-compliances if any, review major legal issues, approval and adoption of half-yearly/annual results, major accounting provisions and write-offs, corporate restructuring, minutes of Meetings of the Committees of the Board and information on recruitment of Key Managerial Personnel including Senior Management.

BOARD MEETINGS

Company shall hold board meetings as and when required in accordance with prescribed provisions of Companies Act, 2013, rules made there under, secretarial standards and other applicable laws, if any. The information to be statutorily made available to the Board pursuant to the applicable provisions and relevant mandatory Secretarial Standards shall be furnished to the Directors before or at the Board Meeting.

BOARD INDEPENDENCE

Independent Directors are expected to play a key role in the decision-making process of the Board by participating in the process of framing the overall strategy of the Company. The Independent Directors should strive to bring in an independent, impartial and objective view to discussions at the meetings of the Board and its Committees and they shall act in a way that is in the best interest of the Company and its stakeholders.

Independent Directors appointed on the Board of the Company shall fulfil the criteria of independence as set out under the provisions of Companies Act, 2013 and other applicable laws in this regard. They shall submit an annual declaration affirming compliance with the criteria of independence for every financial year and such declaration shall be submitted whenever there is any change in circumstances which may affect their independence.

An Independent Director shall hold office for a term of up to five consecutive years and shall be eligible for reappointment for another term of up to five consecutive years on passing of a special resolution by the Company. Provided that an Independent Director, who completes two consecutive term(s) shall be eligible for appointment as Independent Director in the Company only after the expiration of three years of ceasing to be an Independent Director in the Company.

BOARD COMPENSATION REVIEW

The remuneration payable to the Director(s) shall be determined by the Recruitment, Compensation and Nomination Committee and shall be recommended to the Board for its consideration and approval. Further, Independent Directors of the Company may be paid remuneration by way of sitting fees for attending Meetings of the Board and its Committees as per the provisions of Companies Act, 2013.

COMMITTEES OF THE BOARD

The Board shall constitute various Committees as required under relevant statues/rules/regulations, as mandated by the relevant authorities, for operational convenience, to focus effectively on the issues and to ensure expedient resolution of diverse matters. The Board may re-constitute or dissolve such Committees from time to time, as deemed expedient or necessary. The Board may specific terms of reference of such Committees and other incidental matters.

The Committees shall operate as empowered arm of the Board as per their terms of reference. The minutes of the meetings of all Committees of the Board shall be placed before the Board to note.

All decisions pertaining to the constitution/re-constitution/dissolution of Committees, appointment of members and fixing/modification of terms of reference of the various Committees shall be made by the Board of Directors.

As and when the Board so stipulates, the Committees shall periodically report to the Board on various matters that have been referred to the respective Committees.

Board shall constitute such Committees as deemed necessary, from time to time. For the time being, Board has constitute following Committees:-

  • Audit Committee,
  • Asset Liability Management Committee
  • Banking & Borrowing Committee,
  • Corporate Social Responsibility Committee
  • Recruitment Compensation and Nomination Committee
  • Risk Management Committee,
  • Sexual Harassment Committee
  • Any other committee, as may be required to be constituted from time to time.

Brief details of the various Committees are as under

1. Audit Committee

The Company shall constitute an Audit Committee in accordance with the provisions of Section 177 of the Companies Act, 2013, the rules framed thereunder and NHB regulations. The Audit Committee shall consist of a minimum of three directors with Independent Directors forming a majority, provided that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement.

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

  • the recommendation for appointment, remuneration and terms of appointment of auditors of the company;
  • review and monitor the auditor’s independence and performance, and effectiveness of audit process;
  • examination of the financial statement and the auditors’ report thereon;
  • approval or any subsequent modification of transactions of the company with related parties;
  • scrutiny of inter-corporate loans and investments;
  • valuation of undertakings or assets of the company, wherever it is necessary;
  • evaluation of internal financial controls and risk management systems;
  • monitoring the end use of funds raised through public offers and related matters

2. Asset Liability Management Committee

The Company shall constitute Asset Liability Management Committee in compliance with the Guidelines issued by National Housing Bank. The Committee, inter-alia, shall review and monitor the asset liability composition of the Company’s business, liquidity position, interest rates (i.e. Cost of funds to the Company), Investment of excess funds of Company and determine actions to mitigate risks associated with the asset liability mismatches, liquidity position and interest rates.

3. Banking and Borrowing Committee

The Company shall constitute Banking and Borrowing Committee to avail Corporate Banking Services from various Banks, to regulate manner of operation of bank accounts opened in the name of Company, to avail credit facilities from Banking and/or Non-Banking Financial Companies and to invest judiciously excess funds of Company.

4. Corporate Social Responsibility Committee

The company shall constitute Corporate Social Responsibility Committee in compliance with the provisions of section 135(1) of the Companies Act, 2013 (“the Act”) and rules framed thereunder and Schedule VII of the Act.

The Committee, inter-alia, shall:-

  • Formulate and recommend to the Board of Directors the CSR Policy and indicating activities to be undertaken;
  • Recommend the amount of expenditure for the CSR activities, and
  • Monitor CSR activities from time to time

CSR Policy shall be disclosed in Board’s Report and website of the Company.

5. Recruitment, Compensation and Nomination Committee

The Company shall constitute Recruitment, Compensation and Nomination Committee in compliance with the provisions of section 178 of the Companies Act, 2013, the rules framed thereunder. Committee shall consist of three or more non-executive directors out of which not less than one-half shall be independent directors. Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.

The Committee, inter-alia, shall:-

  • Identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall carry out evaluation of every director’s performance.
  • Formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

Such policy shall be disclosed in Board’s report.

6. Risk Management Committee

The Company shall constitute Risk Management Committee in compliance with the provisions of Guidelines on Corporate Governance issued by National Housing Bank and such other applicable laws. The Committee shall, inter-alia, review liquidity risk, portfolio delinquency, internal controls of Company, risk management system of Company, operational risk and apprise the Board on steps to be taken for mitigation of risks and strengthening of internal control system.

7. Sexual Harassment Committee

The Company shall constitute Sexual Harassment Committee in compliance of requirements under Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Committee shall consist of Chairperson, who shall be a woman employee at a senior level in the Company, minimum two members from amongst employees preferably committed to the cause of women or who have had experience in social work or have legal knowledge and one member from amongst non-governmental organisations or associations committed to the cause of women or a person familiar with the issues relating to sexual harassment. Provided that at least one-half of the members of the Committee shall be women. Committee shall formulate anti-sexual harassment policy of women at workplace and hear and dispose of complaints received from women employees in regard to sexual harassment issues at workplace.

PERFORMANCE EVALUATION

The Nomination and Remuneration Committee of the Company shall evaluate the performance of the individual Directors, the Board as a whole and its Committees. The Committee shall provide an overview Report of the evaluation conducted by it, to the Board for their discussion and analysis.

CONFLICT OF INTEREST

The Company expects its Directors, officers and other employees to act ethically at all times and to acknowledge their adherence to the policy(ies) and code(s) adopted by the Company.

The Directors, senior management and other employees of the Company shall endeavour to avoid any conflict of interest with respect to their dealings with the Company. A conflict of interest exists when benefits or interests of one person or entity conflict with the interests or benefit of the Company. If a Director has a potential conflict of interest in a matter under consideration by the Board or a Committee, such Director shall disclose his interest in accordance with the provisions of applicable laws and abstain from deliberations and voting on such matter. A Director who is interested in any proposed transaction shall not exercise any influence over other Board/Committee Members in any manner whatsoever. Officers and other employees must disclose the circumstances of any possible conflict of interest to his / her supervisor and the Managing Director and CEO, for a determination about whether a potential or actual conflict exists. If an actual or potential conflict is determined, the Company may take whatever corrective action appears appropriate according to the circumstances. Failure to disclose facts shall constitute grounds for disciplinary action.

AUDITORS

Audit Committee shall recommend to Board for appointment/re-appointment, remuneration and terms of appointment of auditors of the Company on the basis of their professional ability and independence.

Statutory Auditors

The Company shall review the independence and performance of the Statutory Auditors and the effectiveness of the audit process periodically. Declaration shall be obtained from the Auditors affirming their eligibility for being appointed as the Statutory Auditors of the Company. The Company shall rotate the partner/s of the Chartered Accountant firm conducting the audit, every three years so that same partner does not conduct audit of the Company continuously for more than a period of three years. However, the partner so rotated will be eligible for conducting the audit of the Company after an interval of three years, if the Company, so decides. Company shall incorporate appropriate terms in the letter of appointment of the firm of auditors and ensure its compliance.

Internal Auditors

Internal Auditor shall be appointed to perform independent and objective assessment of the internal controls, processes and procedures instituted by the management and accordingly monitor its adequacy and effectiveness.

Secretarial Auditors

The Board shall appoint an independent company secretary in practice, in accordance with the provisions of the Companies Act, 2013 and Rules made thereunder to conduct a secretarial audit of the Company for every financial year. The Secretarial Auditor shall provide its report in the form and manner prescribed under the applicable laws / regulations. The Secretarial Audit Report shall be placed before the Board for its noting and records and the same be annexed to the Board’s Report which shall be circulated to the members of the Company in accordance with the applicable laws / regulations.

WHISTLE BLOWER POLICY / VIGIL MECHANISM

The Whistle Blower Policy / Vigil Mechanism is formulated to provide a mechanism to anyone connected with the Company to approach and disclose unethical and improper practices or any other wrongful conduct in the Company and to prevent managerial personnel from taking any adverse action against person(s) reporting such matters.

RELATED PARTY TRANSACTION POLICY

Company shall frame Policy to deal with transactions Company may enter into with Related Party/ies to ensure proper approval and reporting of transactions between the Company and its Related Parties. Any transaction with a Related Party shall be considered to be appropriate only if it is in the best interest of the Company and its Members. The Board or any of its Committees which are dealing with related party transaction(s), shall accord their approvals for such transactions in compliance with the applicable laws and the Related Party Transaction Policy of the Company

FIT AND PROPER CRITERIA

The Company shall frame Policy for ascertaining the Fit and Proper criteria of the Directors at the time of appointment and on a continuing basis. The Policy on the Fit and Proper Criteria is in accordance with the Directions issued by the National Housing Bank in this regard.

DISCLOSURES AND TRANSPARENCY

The Company is committed to make adequate disclosures based on the principles of transparency, timeliness, fairness and continuity. The Board of Directors and employees of the Company shall ensure and make necessary disclosures to the Company, the Regulator(s) / Statutory Authorities, the Shareholders, Investors, Members or other stakeholders as may be required by the applicable laws and the Codes / Policies of the Company.

The Board of Directors of the Company or such other person authorised by the Board or under any law/ regulations, shall ensure that all the disclosures statutorily required to be made on behalf of the Company are duly made to the Regulatory / Statutory authorities or such other persons as may be required under applicable laws/ regulations.

The Company as per the requirement of the Companies Act, 2013, and the Guidelines issued by the National Housing Bank on Corporate Governance of Housing Finance Companies put up to the Board of Directors, at regular intervals, the following:

  • the progress made in putting in place a progressive risk management system, risk management policy and strategy followed by the Company;
  • conformity with Corporate Governance standards viz., in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions, etc.

COMPLIANCE OFFICER

The Board of Directors shall designate a Compliance Officer to ensure compliance with applicable laws.

POLICIES ADOPTED BY THE COMPANY

The Company shall adopt such policies, as may be required to adopt under the Companies Act, 2013, rules made thereunder, the National Housing Bank Guidelines applicable to the Company and such other laws and regulations as may be applicable.

The Policies adopted may be reviewed by the Board from time to time.