CORPBANK SECURITIES LIMITED
ANNUAL REPORT 2005-2006
DIRECTOR'S REPORT
Your Directors have pleasure in presenting the Seventh Annual Report on the
business and operations of your Company together with audited Balance Sheet
and Profit and Loss Account for the year ended 31st March 2006.
1. Financial Results
1.1 The financial results for the year ended 31st March 2006 with the
comparative figures of Company's operations for the previous year are
furnished below:
(Rs.in lakh)
31.3.2006 31.3.2005
Total Income 1341.16 (5267.14)
Total Expenditure 1537.01 (1600.73)
Profit/(Loss) Before Tax (195.85) (6867.87)
Less: Provision for Taxation
& Prior period Expenses - -
Less: Deferred Tax Asset Net 63.10 2308.18
I T Refund Received - 52.01
Profit/(Loss) After Tax (132.75) (4507.68)
Add: Balance brought forward
from last year 1108.51 5616.19
Amount available for Appropriation - -
Appropriations
Surplus carried to Balance Sheet 975.76 1108.51
Total 975.76 1108.51
1.2 Your Company has posted a Net Loss of Rs 1.33 crore after providing for
net deferred tax asset of Rs 0.63 crore for the financial year ended 31st
March 2006 as against net loss of Rs.45.08 crore posted for the financial
year ended 31st March 2005. The Tangible Net Worth of the Company
consequently stood at Rs.131.49 crore as on 31st March 2006 as compared to
Rs.133.41 crore as on 31st March 2005.
2. Dividend
As the business operations of the Company resulted in loss for the
financial year 2005-06 no dividend has been proposed.
3. Capital Adequacy Ratio
As against the minimum CAR of 15% stipulated by Reserve Bank of India, your
Company's Capital Adequacy Ratio (CAR) as on 31st March 2006 stood at
553.95% as compared to 122.64% as on 31st March 2005.
4. Money & Securities Market Developments
4.1 During 2005-06, the overall stance of monetary policy of Reserve Bank
of India switched from a ' very close watch on the movements in the price
level' to 'equal emphasis on price stability.' Similarly emphasis on
liquidity management switched from providing 'adequate liquidity' to
'appropriate liquidity.' The policy measures were also calibrated to
evolving circumstances with a view to stabilizing inflationary
expectations. The annual monetary policy and quarterly reviews made during
2005-06 emphasised, among other things, on a) price stability in the
backdrop of inflationary expectations b) providing appropriate liquidity to
meet genuine credit needs c) financial stability d) credit quality and e)
growth momentum. RBI, by adopting various monetary measures exhibited
resilience to evolving market dynamics.
4.2 During 2005-06, monetary and liquidity conditions remained largely
comfortable, but there was tightness in liquidity during last four months,
reflecting partly the impact of the redemption of India Millennium Deposits
(IMDs). RBI injected liquidity through unwinding of Market Stabilisation
Scheme (MSS) and repo operations under the Liquidity Adjustment Facility.
Considering the macro economic and overall monetary conditions, RBI hiked
Reverse Repo rate periodically - from 4.75% to 5% in April 05, left the
rates unchanged in July 05 review, hiked to 5.25% in Oct 05 review and to
5.50% in Jan 06 review. Money Supply (M3) expanded by 16.2%- as against
projected expansion of 14.5%- on a year on year basis as on March 31, 2006,
while it was 13.9% a year ago. The headline inflation and inflation
expectations remained well contained, despite dominance of supply side
factors. The WPI inflation was 3.5% on April 1, 2006 as compared with 5.7%
a year ago. The interest rates in money and Government Securities markets
rose intra year with 10 year benchmark yield moving from 6.69% to 7.52%
year on year basis.
4.3 During 2005-06 the Central Government's net market borrowings at Rs
95,370 crore were 86.5% of the budged amount of Rs 1,10,291 crore and gross
market borrowings of Rs 1,58,000 crore were 88.5% of the budgeted amount of
Rs 1,78,487 crore. The weighted average yield on primary issuance of the
Central Govt's dated securities rose to 7.34% in 2005-06, from 6.11% in the
previous year.
5. Financial and operating Performance
5.1 During the year 2005-06, your Company incurred loss due to rise in
yields in the aftermath of policy review by RBI in April & October 2005 and
January 2006 when repo rate of 25 bps was hiked each time. The total
revenue of the Company was Rs 13.41 crore, even after reckoning the loss on
sale of Dated Govt. Securities, while the total revenue was negative at Rs
52.67 crore in the previous financial year. The performance was in the
backdrop of uncertainties experienced by the Primary Dealers in the Debt
Market on account of a) pressure on liquidity due to IMD outflows, b)
active unwinding of securities by Banks beyond the SLR level. c) spurt in
credit growth in preference to investment in SLR due to rising demand for
credit, d) hike in interest rates in both national and international
levels, etc. As a Primary Dealer, the Company had an obligation to fulfill
its bidding commitments and to participate in each auction and to ensure
fulfilling stipulated minimum success ratio. In the process, it had to take
involuntary position and to unload the portfolio to provide room for fresh
primary auctions, irrespective of market conditions.
5.2 The loss incurred on Dated Govt. Securities transactions for 2005-06
was Rs 12.36 crore while for the Financial Year 2004-05 it was Rs 88.24
crore. The total expenditure came down to Rs. 15.37 crore in the financial
year 2005-06 as against Rs.16.31 crore in the financial year 2004-05.
5.3 In the Primary market operations, your Company submitted bids in the
primary auctions to the extent of Rs.5471.40 crore under Dated Govt
Securities and Rs.4668 crore under Treasury Bills as against the commitment
of Rs.5500 crore and Rs.3668 crore respectively. As regards minimum success
ratio of 40/% in Treasury Bills-to be achieved on half yearly basis-your
Company achieved success ratio of 60.56%and 29.08% respectively; and as
against 40% success ratio in Dated Govt. securities, the company has
achieved 40.77%.
5.4 In the secondary market operations, your Company improved the total
turnover to Rs.1,31,402 crore in 2005-06 from Rs.1,19,005 crore in the
previous financial year. The turnover ratio achieved was 85 times of
average month-end stock under Treasury Bills and 222 times under Dated
Government Securities as against the Reserve Bank of India stipulation of
10 times and 5 times respectively.
5.5 Your Company continues to be active in the Collateralized Borrowing and
Lending Obligation (CBLO) segment, a product developed by Clearing
Corporation of India Limited (CCIL) to enable the market participants to
raise and deploy funds through CBLOs, which are backed by collaterals. The
Company moved over to screen based trading since August 2005, with the
introduction of NDS Order Matching System provided by CCIL for dated Govt
Securities The CBLO turnover recorded by the Company during 2005-06 was
Rs.76924 crore.
5.6 The Return on Net worth (RONW) for the financial year 2005-06 was
negative. The average yield on the portfolio during 2005-06 was 6.28%
(6.91% in 2004-05) and the Net Interest Margin was 2.79% in 2005-06 as
against 4.30% in 2004-05.
6. Outlook for the current financial year (2006-07)
6.1 The outlook for growth in the current financial year continues to have
focus on a) credit quality, b) financial stability c) providing monetary
and interest rate environment to enable growth momentum consistent with
price stability. The LAF rate corridor is expected to emerge as an
important tool for monetary management. The Reserve Bank of India in its
Annual Policy released in April 2006 has projected GDP growth in the range
of 7.5-8.0%, The inflation rate on a point-to-point basis is expected to be
in the range of 5.0-5.5% and the projected expansion in broad money (M3) is
expected to be around 15%. The monetary measures of RBI in the Annual
Policy of April 2006 remained unchanged with no revision in Bank rate,
Reverse Repo rate and Cash Reserve Ratio. However, RBI by using the policy
instruments at its disposal flexibly when the situation warranted, hiked
the reverse repo rate in between the two reviews, on 8th June 06 that took
the market by surprise.
6.2 The fiscal deficit of the Central Government is projected at 3.83% of
GDP for 06-07. The net market borrowing programme of the Central Govt. is
budgeted at Rs.1,13,778 crore, as against Rs 95,370 crore in the previous
year. While the size of the borrowing programme is relatively larger than
previous year, this has to be viewed in the backdrop of the buoyant growth
of the economy, growing appetite of non-banks for Govt. securities and the
need for many banks to strengthen their SLR portfolio for statutory as also
for liquidity management purposes.
6.3 The stance of Monetary Policy for 2005-06 released by RBI in April 2006
was to a) ensure a monetary and interest rate environment that ensures
growth momentum with consistent price stability and to act in a timely and
prompt manner on any signs of evolving circumstances, impinging on
inflation expectations b) to focus on credit quality and financial market
conditions to support export and investment demand for maintaining
financial stability and c) to respond swiftly to evolving global
developments.
6.4 Reserve Bank of India, in accordance with the Annual Policy statement
for 2006-07 has, in July 2006, proposed to permit stand alone Primary
Dealers to diversify their activities, in addition to their existing
business of Govt Securities by which PDs have to bifurcate their operations
into core and non-core activities. While certain activities proposed would
need capital like investment / trading a) in equity and equity derivatives
market, b) in units of equity oriented mutual funds and c) underwriting of
public issues of equity, other activities/services proposed would require
nil or insignificant capital outlay like a) Distribution of Insurance
products & mutual fund units, b) loan syndication, c) Project appraisal
services, d) Loan syndication and the like. This diversification proposal
is expected to augur well for the PDs to aim for regular stream of income
and to bolster their operating performance.
7. Directors
7.1 During the year 2005-06, the following changes have taken place amongst
the Board of Directors:
* Sri. Radhakrishnan Nair, Director resigned consequent upon his movement
to SEBI from Corporation Bank, as Executive Director.
* Sri V K Chopra, Chairman of the Board resigned upon super-annuation and
in his place Sri B Sambamurthy, Chairman and Managing Director of
Corporation Bank has been inducted as the Director and Chairman of the
Board.
7.2 The Board places on record its deep appreciation for the professional
guidance and support extended by the outgoing Directors.
8. Audit Committee
8.1 The Audit Committee of the Board had been constituted, pursuant to
Section 292A of the Companies Act, 1956, presently consisting of Sri R H
Patil, Independent Director as the Chairman with Sri K L Gopalakrishna, Sri
K. Achutha Pai, Sri M. Narendra and Sri U Balakrishna Bhat as other
Members.
8.2 During the period April 2005 to March 2006, the Audit Committee met six
times.
9. Conservation of Energy
The Company's activities are service related and it is making efforts to
conserve and optimise energy by economising on the use of electric power in
its Office.
10. Directors' Responsibility Statement
Pursuant to the requirement under Section 217 (2AA) of the Companies Act
1956, with respect to Directors' Responsibility Statement, it is hereby
confirmed that:
i. in the preparation of the annual accounts, the applicable accounting
standards have been followed along with proper explanation relating to
material departures;
ii. the Directors have selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company at the end of the financial year and of the profit or loss of the
Company for that period;
iii. the directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act,1956 for safeguarding the assets of the
Company and for preventing and detecting fraud and other irregularities;
and
iv. the directors have prepared the annual accounts on a going-concern
basis.
11. Statutory and Internal Auditors
11.1 M/s. R B Jain & Associates, Chartered Accountants, Mumbai were
appointed as the Statutory Auditors of the Company by the Government of
India, Department of Company Affairs on the advice of Comptroller & Auditor
General of India for the F Y 2005-06.
11.2 M/s Devdhar Srinivasan & Flora were the concurrent auditors of the
Company for the period April - September 2005 and M/s Shah Gupta & Co,
Chartered Accountants were the Concurrent Auditors for the period October
2005-March 2006.
11.3 Your Company is subject to the Supplementary Audit of the accounts of
the Company by the Office of the Comptroller and Auditor General of India
under Section 619 (4) of the Companies Act, 1956, and the Report for the
year ended 31st March 2006 contains the following comments:
Comments:
1. Balance Sheet:
Notes to Account
According to Bombay Stamp Act 1958, the Company is liable to pay stamp duty
on sale and purchase of securities, shares, etc. The Government of
Maharashtra called (October 2005) for the details of the securities traded
by the Company during the period 1996-97 to 2004-05. The Company took up
the matter with the State Government for exemption of the Government
securities from the provisions of the Act and was expecting a Government
notification to this effect. Pending issue of the notification, the Company
has neither provided the liability, nor disclosed this fact in the accounts
2. Report of the Statutory Auditors:
i. The Company is a 'deemed Government Company' under section 619(B) of the
Companies Act 1956. However, the statutory auditors treated the Company as
'Government Company' under Section 617 of the Companies Act, 1956 and did
not disclose whether any of the directors was disqualified as on 31st March
2006 from being appointed as director under Section 274(1)(g) of the
Companies Act, 1956
ii. The Statutory auditors while certifying the Profit and Loss account
mentioned 'Profit for the year' instead of 'Loss for the year.'
Management Reply:
1. Notes to Account: Although the matter was raised by the Supdt. of
Stamps, Maharashtra in October 2005 to various Banks, Mutual Funds, Primary
Dealers and other participants in the securities market, there was wide
spread representation from various self regulatory organisations like
Primary Dealers' Association of India (PDAI), Fixed Income Money Market and
Derivatives Association of India (FIMMDA), Association of Mutual Funds of
India (AMFI) and Indian Banks' Association (IBA) and an ad hoc Meeting was
held on 13th January 2006 with Officials of Govt. of Maharashtra. During
the meeting, the Govt. of Maharashtra agreed to look favourably towards
exempting Govt Securities from stamp duty and the Company awaited the Govt.
Gazette Notification more as a procedural aspect. Further this position was
made official through circulation of the Minutes of the said Meeting to all
concerned. As the Company was dealing only in Govt. Securities, and also as
the copy of the Minutes was circulated to the company as member of PDAI and
FIMMDA, it was considered that no claim could arise by way of Stamp Duty
and hence the same was not provided and hence disclosure in the Notes to
the Accounts did not arise. Subsequently, the Govt.of Maharashtra had
issued Notification through its Revenue and Forests Dept vide Mudrank
2006/C.R.292/M.1 dt 23rd May 2006, remitting the stamp duty in the whole on
the Govt. Securities' transactions. As remission amounts to cancellation,
no liability would accrue. Hence the Company was proper in not providing
for any Stamp duty as payable.
2. Report of the Statutory Auditors:
i. Section 619(B) covers deemed Govt Company and hence it has all the
features and status of a Govt Company as defined in Section 617.
Accordingly it was reported as a Govt Company under broader definition of
Section 617 of the Companies Act 1956. However the comments have been noted
for incorporation by the Statutory Auditors in future reports.
ii. Noted.
12. Public Deposits
During the year ended 31st March 2006, Company has not accepted any
deposits from the public within the meaning of the provisions of the Non
Banking Financial Companies (Reserve Bank) Directions, 1977 and Reserve
Bank of India circular dated January 31, 1998.
13. Personnel
All the employees of the Company as on 31st March 2006 were on deputation
from Corporation Bank. The information required under Section 217 (2A) of
the Companies Act, 1956 read with the Companies (Particulars of Employees)
Amendment Rules, 2002 may be treated as NIL as none of the employees of the
Company drew remuneration beyond the specified limit. No employee was
related to any Director of the Company. Staff relations were cordial and
harmonious.
14. Acknowledgment
Your Directors place on record their gratitude to the Government of India,
Reserve Bank of India, Clearing Corporation of India Limited, various
Commercial Banks, Mutual Funds and other valued clients for their whole-
hearted support. Your Directors further acknowledge the committed efforts
put in by all the employees of the Company.
For and on behalf of the Board of Directors
B. SAMBAMURTHY
Chairman
Place : Mumbai
Date : 10th August, 2006
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