THE SMARTER www.fincarebank.com ALTERNATIVE Leveraging SmartBanking technology, for inclusive growth Annual Report 2017-18 Index 1 Bank with a difference - What Sets us Apart 02 2 From a Rich Legacy to a Smarter and Brighter future 03 3 The Growth Years 05 4 Smart Growth - the Year in Perspective 07 5 Chairman’s Message 13 6 MD & CEO's Message 15 7 Board of Directors 18 8 Management Team 19 9 Our Network 21 10 Our Product Portfolio 23 11 A Smart Transformation from Microfinance to Rural Banking 33 12 Digital Banking – Smarter Way to Rurban Banking 37 13 Ahead with Smart Technology 40 14 Fincare – The Making of a Smart Bank 43 15 Social Initiatives - Caring for the Communities we work within 47 16 Human Capital - People are the Biggest Strength 49 17 SmartBanking Outlets 55 18 Centralized Processing Centre – the Smart Backbone 57 19 Risk, Compliance, Field Monitoring and Audit – Building Smart Controls 59 20 Director's Report (Annexures I,II,III,IV) 67 21 Management Discussion and Analysis 104 22 Pillar III Disclosures 108 23 Independent Auditors Report 119 24 Financials with all the Schedules 121 SMARTER IS THE NEW BETTER Using technology, we have simplified, dis-intermediated and democratized the access to Finance. We truly believe that - "if it is worth doing, it is worth doing smarter!" This is Fincare SFB's chosen path. BANK WITH A DIFFERENCE WHAT SETS US APART Superior understanding of Assisted banking - tab based customers - a strong legacy in solutions across all retail Micronance and deep businesses. penetration in rural markets. Instant gratication - instant, Convenient, Doorstep Banking paperless account opening and - relationship teams equipped servicing, and instant credit with tabs. decisioning. Attractive product suite - LAP Superior rates on Savings and and LAG for micro and small Fixed Deposit products – businesses at competitive amongst the highest in the rates, and quick turnaround. industry. Simplied banking – simple Anytime, anywhere banking - products, easy documentation full-edged Internet Banking and straight through and Mobile Banking. processes. Customer centricity - Enhanced access - Nearly 500 multilingual, toll free banking outlets call center Positive brand appeal - association with Chess Grandmaster Viswanathan Anand. Annual Report / 02 FROM A RICH LEGACY, TO A SMARTER AND BRIGHTER FUTURE OUR TRANSITION: Our journey in the financial services business began in the late 2000s with the set up of Future Financial services - a Microfinance company with operations in Andhra Pradesh, and Disha Microfin - a Microfinance company with operations in Gujarat. Since then, we have grown from strength to strength, matured our operations, faced and overcame difficult circumstances and emerged more resilient. During the last financial year, we have expanded from a monoline product, offering a product suite consisting of various Credit, Savings, Payments and other products, grown our footprint across 10 states and 1 union territory and truly transformed as a Small Finance Bank. Blessed with a rich legacy, we are making rapid strides towards a brighter, smarter future. Our SmartBanking journey begins Launch of Fincare Small Finance Bank Launch Event, 1st Sep 2017, Marriott, Ahmedabad Annual Report / 04 FINCARE SFB - SNAPSHOT - THE GROWTH YEARS FACILITATING INCLUSIVE FINANCE 2007 2008 2010 2013 Future Financials Disha Microfin, True North n Exponential Services Private an NBFC-MFI (formerly India growth Ltd (FFSPL), commences Value Fund) n Expansion an NBFC- MFI Microfinance invests in FFSPL of Microloans commences operations and Disha business in Microfinance in Gujarat Microfin South and operations in West India Andhra Pradesh n Launch of Loan Against Property business THE TRANSFORMATION YEARS 2014 2 015 2016 2017 FFSPL and Receipt of Small n Banking n Receipt of Disha Microfin Finance Bank transformation final license unite under in-principle initiated from RBI brand name approval, from n Integration of n Conversion to Fincare RBI FFSPL and and launch of Disha Microfin Fincare Small Finance Bank n Launch of Loan Against Gold and Institutional Finance business (In ` Crore) SMART GROWTH P&L HIGHLIGHTS THE YEAR IN TOTAL INCOME PERSPECTIVE 351 89% Y-O-Y growth NET INTEREST INCOME 195 91% Y-O-Y growth Disha Micron transformed to PAT Fincare Small Finance bank and commenced operations in Jul 2017. Fincare SFB is a retail -98 bank with a ‘Rurban’ focus, built on the foundation of trust, transparency and technology, with a promise to usher in a OPERATIONAL HIGHLIGHTS SmartBanking revolution. BANKING OUTLETS As a bank, Fincare SFB offers a range of smart nancial products covering 364 the Credit, Savings, Insurance and payments needs of its customers; not only in urban, but also in rural and CUSTOMERS semi-urban markets. Instant gratication through digital 10 Lakh+ solutions is a fundamental value proposition offered by the Bank. The smart products and services offered EMPLOYEES by the Bank ensure that our customers enjoy the convenience of banking, anytime, anywhere. 4,357 (In ` Crore) BALANCE SHEET TOTAL TOTAL DISBURSEMENTS 90% Y-O-Y growth 80% Y-O-Y growth 2,274 2,070 1,198 1,150 FY17 FY18 FY17 FY18 TOTAL ADVANCES TOTAL DEPOSITS 63% Y-O-Y growth 2,135 1,314 727 NIL FY17 FY18 FY17 FY18 NET WORTH PRE PROVISION OPERATING PROFIT 54 435 338 24 FY17 FY18 FY17 FY18 Annual Report / 08 GROSS NON-PERFORMING ASSETS NET NON-PERFORMING ASSETS 0.95% 0.72% 0.80% 0.40% FY17 FY18 FY17 FY18 RETURN ON ASSETS RETURN ON EQUITY 0.90% 4.7% FY18 FY18 FY17 FY17 -6.4% -24.8% COST TO INCOME RATIO CAPITAL ADEQUACY RATIO 48.4% 79% 77% 23.5% FY17 FY18 FY17 FY18 Annual Report / 09 CORPORATE OVERVIEW PASSIONATE ABOUT VALUES WE DO RURBAN APPROACH WHAT WE SAY... THE THINK CUSTOMER FINCARE DELIGHT WAY WIN WIN PARTNERSHIP VALUES CHARTER FAIR NIMBLE INNOVATIVE COLLABORATIVE WE DO WHAT WE SAY... THE FINCARE WAY Chairman’s Message I am most proud to state that the present Management Team of the ““ Bank is extremely passionate and committed to building a truly 'world class' bank, in letter and in spirit. We celebrated the rst year of the tenacity and persistence of Bank, where every aspect of operation as a Small Finance Bank players across industries and banking operations, including after navigating a challenging sectors. Given that the banking and customer onboarding, backend transition period, before orbiting nance system was at its epicenter, processes and workows, risk into a path of discovering new skies. it took the best of thinking and management, and compliance is execution to overcome the sudden looked at with the digital lens and Thanks to a strong foundation which bump in the road. I am proud to every manual element is reviewed includes a proven business model, share that the entire team at with the clear intent of eliminating passionate Management Team, rural- Fincare, under the leadership of its that from the process. In our digital rst centricity, strong process and MD & CEO, has exhibited will, journey, a lot has already happened, technology orientation, nancial perseverance and diligence in but I think that the best is yet to inclusion focus and a robust overcoming concerns of all come. I truly believe that it is a compliance framework, all of which stakeholders, primarily its matter of time that Fincare will be were recognized by the regulator as customers, by helping them make seen as the foremost Digital Bank in key ingredients in the making of a sense of the change. The position the country. differentiated banking model, The that we are in today on this issue license to set up a Small Finance Becoming a deposit generating strengthens my condence that in Bank was granted to Fincare among the coming years, Fincare Small engine other select players. During the year, Finance Bank would achieve in compliance with the licensing As an NBFC that converted to a something bigger and outstanding. guidelines, the Bank has undergone Bank, Fincare Small Finance Bank comprehensive restructuring, and in As Chairman of this institution for had no history or experience of the process has adopted a the past one year, I have had the collecting and managing deposits. completely new avatar. privilege of having a ringside, as After conversion, once this source well as an inside view of all that of funding opened up, the team got A standout point of the year has transpired. Of these, I would sure down to understanding the nuances been the handling of the after- like to share ve important aspects. of this business, learnt the ropes effects of the currency and touched a base of ` 727 Crore demonetization in the business Coding a digital DNA in deposits in the rst year. environment. This period challenged This is truly the rst Digital-rst I rmly believe that once the Annual Report / 13 regulator grants the status of a action taken report and quickly Excellent – and in The Fincare Way, Scheduled Bank, this journey will followed by a review of risks and we will nd our true calling and accelerate and become a stable and mitigation actions, regulatory asks success. steady engine of funds for the Bank. and adherence steps, and a My sincere thanks to the board compliance report. The control and Achieving product members who have, individually as compliance matters form a well as collectively, contributed with diversication signicant part of the report which their considerable wisdom and clearly demonstrates the emphasis Given our legacy as a Microloans experience immensely to this placed on the same. company, retaining this business as journey. the core of the Bank is quite Creating a winning team On behalf of the board, I take this understandable. What the Bank has opportunity to thank our investors, nicely done is identifying I am most proud to state that the our committed and passionate complementary diversication present Management Team of the ‘Fincarers’, our vendors, and all opportunities based on market Bank is extremely passionate and other partners who got associated surveys and then piloting them.