1. Preamble And Company’s philosophy on Corporate Governance:
L&T Finance Limited (“the Company / LTF”) is a wholly owned subsidiary of L&T Finance Holdings Limited (“LTFH”) and is a Non Deposit Accepting – Systemically Important Non-Banking Finance Company (“NBFC-ND-SI”) and is registered with the Reserve Bank of India (“RBI”) as an Asset Finance Company (“AFC”).
The Company draws its philosophy from its parent LTFH, which is a Non-Banking Finance Company – Core Investment Company and whose shares are listed on the stock exchanges. It is the Company’s endeavor to excel through better Corporate Governance and fair and transparent practices.
Corporate Governance means the system of rules, practices and processes by which a company is administered and controlled. It involves balancing the interests of the various stakeholders of the company including shareholders, employees, customers and the community within which it operates. These corporate governance guidelines will help the Company in attaining its objectives/goals, since it encompasses every sphere of operations, management, action plans, internal controls and regulatory disclosure.
2. RBI Guidelines on Corporate Governance:
RBI vides its Master Circular no. RBI/2015-16/12 DNBR (PD) CC.No.053/03.10.119/2015-16 dated July 1, 2015 (“RBI circular”) directed NBFCs to frame internal guidelines on corporate governance which is to be approved by its Board of Directors.
3. Governance Structure:
a. Board of Directors:
The Board of Directors (“the Board”) along with its Committees shall provide leadership and guidance to the Company's management and direct, supervise and control the performance of the Company.
The Board of the Company shall have an optimum combination of Executive and Non-Executive directors in compliance with the Companies Act, 2013 and other regulatory guidelines, if any.
b. Code of Conduct:
The Company has framed a Code of Conduct / Business Ethics for its Non-Executive Directors. All Non-Executive Directors on the Board of the Company ensures compliance with the same.
Further, the Parent Company viz, LTFH has framed a Code of Conduct for its employees which covers employees of all the entities under LTFH. Accordingly all employees of the Company including Executive Directors follow aforesaid Code of Conduct as framed by the parent Company, LTFH.
c. Committees of the Board:
The Board functions as a full Board and also through various Committees constituted to oversee specific areas. The Committees have oversight of operational issues assigned to them by the Board. Accordingly, the core Committees constituted by the Board in this connection are as follows:
i. Audit Committee:
The Company has in place an Audit Committee constituted under the provisions of Section 177 of the Companies Act, 2013 and in terms of applicable RBI guidelines in this regard.
The Audit Committee shall have the powers and duties conferred upon it in compliance with the provisions of Section 177 of the Act, applicable SEBI Regulations, RBI guidelines and such other duties, obligations and powers as may be prescribed by the Board of the Company from time to time.
The Committee shall meet three times in a year.
ii. Nomination and Remuneration Committee:
The Company has constituted a ‘Nomination and Remuneration Committee’ in compliance with the provisions of Section 178 of the Companies Act, 2013 and the same is in conformity with the RBI guidelines issued in this regard from time to time.
The Nomination and Remuneration Committee shall have the powers and duties conferred upon it in compliance with the provisions of Section 178 of the Act, applicable SEBI Regulations, RBI guidelines and such other duties, obligations and powers as may be prescribed by the Board of the Company from time to time.
The Committee shall meet as and when required and prior to every appointment/re-appointment.
iii. Asset-Liability Management Committee:
The Company has in place the Asset-Liability Management Committee (“ALCO”) constituted in accordance with the RBI guidelines. The ALCO's primary goal is to evaluate, monitor and approve practices relating to risk due to imbalances in the capital structure. The Company has a Board approved Asset Liability Management Policy in place and required disclosures to the effect are made from time to time.
The Committee shall meet once every month.
iv. Risk Management Committee:
The Company has in place a Risk Management Committee constituted in accordance with the RBI guidelines in this regard. The Risk Management Committee is responsible for managing, inter alia the integrated risk which includes liquidity risk, interest rate risk, currency risk and such other functions as may be assigned to it by the Board of the Company. Further, the Risk Management Committee shall ensure that progressive risk management system and risk management policy and strategy followed by the Company are put in place.
The Committee shall meet once in every quarter.
v. Other Committees:
In addition to the aforesaid Committees, the Company has also constituted the following Committees:
- Corporate Social Responsibility Committee
- Committee of Directors
- Credit Committee
- Investment Committee
- Stakeholders Relationship Committee
d. Fit & Proper Criteria:
In terms of RBI circular no. RBI/2014-15/299 DNBR (PD) CC.No.002/03.10.001/2014-15 dated November 10, 2014 and RBI Master Circular no. RBI/2015-16/12 DNBR (PD) CC.No.053/03.10.119/2015-16 dated July 01, 2015, the Company has in place a Board approved policy on ‘Fit and Proper Criteria for Directors’ (“the Policy”). Pursuant to the Policy, the Company obtains necessary disclosures from Directors from time to time. Further, the Company ensures compliance with the provisions laid down in the said Policy.
Further as required under the above referred RBI circulars, the Company shall ensure to furnish to the RBI on a quarterly basis, statement on change of directors and a certificate confirming that fit and proper criteria in selection of the directors has been followed. The same should be submitted to the Regional Office of RBI within 15 days of the close of the respective quarter and the statement for the quarter ending March 31, should be certified by the auditors.
e. Vigil Mechanism:
Pursuant to Rule 7 of the Companies (Meetings of Board and its Powers) Rules 2014 read with Section 177(9) of the Act, the Company has framed and adopted Vigil Mechanism Framework (“the framework”) to enable directors and employees to report genuine concerns about unethical behaviour, actual or suspected fraud or violation of Code of Conduct.
Under the framework, the Company has set up ‘Whistle Blower Investigation Committee’, which is in compliance with the requirements of the Companies Act, 2013. The objective of this mechanism is to maintain a redressal system which can process all complaints concerning questionable accounting practices, internal controls, or fraudulent reporting of financial information.
f. Disclosure and Transparency:
a) The Company shall update the Board of Directors through the Risk Management Committee, on annual basis or such other frequency as decided by the Board, the following:
- The progress made in putting in place a progressive risk management system and 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.
b) The following shall be disclosed in the Company’s Annual Financial Statements:
- registration/ licence/ authorisation, by whatever name called, obtained from other financial sector regulators;
- ratings assigned by credit rating agencies and migration of ratings during the year;
- penalties, if any, levied by any regulator;
- information namely, area, country of operation and joint venture partners with regard to Joint ventures and overseas subsidiaries and
- asset-liability profile, extent of financing of parent company products, NPAs and movement of NPAs, details of all off-balance sheet exposures, structured products issued by the Company as also securitization/ assignment transactions and other disclosures, as may be prescribed by RBI from time to time.
g. Statutory Auditors:
The appointment of Statutory auditors and the partner/s of the Chartered Accountant Firm conducting the Statutory Audit of the Company, shall be in terms of the provisions of Section 139 and 141 of the Companies Act, 2013 and in accordance with the applicable RBI guidelines as amended from time to time.
h. Policies Adopted by the Company
The following policies have also been framed and adopted by the Board of the Company, and which forms part and parcel of the overall corporate governance framework of the Company:
- Fair Practices Code
- Credit Policy
- Investment Policy
- Treasury Risk Management Policy
- Policy on Issuance of Perpetual Debt Instrument
- Risk Management Framework
- Customer Grievance Redressal Policy
- Asset Liability Management Policy
- Operational Risk Management Framework
- Outsourcing Policy
- Resource planning policy
- NPA Provisioning Policy
- Corporate Social Responsibility Policy
- Policy on Related party Transactions
- Policy on Fit and Proper criteria for Directors
- Policy on Wilful Defaulters
These guidelines shall be reviewed by the Board of Directors at such intervals as and when deemed necessary, in order to align the same with the prevalent regulatory and business requirements.