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Management Discussion  
Edelweiss Financial Services Ltd.
 
BSE Code 532922
ISIN Demat INE532F01054
Book Value(Rs.) 36.48
NSE Code EDELWEISS
Dividend Yield % 1.41
Market Cap(Rs. in millions) 92922.36
P/E 55.90
EPS 1.78
Face Value(Rs.) 1  
Year End: March 2016
 

MANAGEMENT DISCUSSION & ANALYSIS

MACRO ECONOMY : REVIEW AND OUTLOOK

The year FY16, did not pan out as envisaged last year primarily due to a deterioration in global situation leading to exports slowdown and the second straight year of poor monsoon. Government did reorient the fiscal spending towards infrastructure in graduai economie recovery. Reserve Bank of India (RBI) also resumed monetary easing in FY16. However, due to stretched bank balance sheets, less than half of RBI cuts got transmitted.

Going into FY17, we expect the situation to improve because - first, a normal monsoon (IMD's forecast) should provide relief to rural economy. Second, the benefits of RBI rate cuts will finally flow into the domestic economy through better transmission and lastly, Government's infra push and reforms should start improving the domestic economy.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Commercial Credit Markets

The growth of Indian banking sector moderated further during FY16 (non-food credit at sub 12% levels) following slower than anticipated macro recovery which led to cash flows of borrowers coming under stress. As a result, the asset quality of banks continued to worsen. In addition, the asset quality review of banks by RBI exacerbated the pain. Hence, the profitability of PSU banks continued to be under strain and will recover only gradually.

NBFC Industry

The NBFC sector has been steadily gaining systemic importance with increase in assets from less than 11% of banking assets in FY09 to over 14% now.

NBFCs have been growing at a faster rate due to a smaller base and also due to their ability to structure transactions to satisfy specifies customer needs. NBFCs could also control the asset quality, though it has worsened, due to their agility and availability of a higher and quality collateral cover. NBFCs continue to be an important source of capital for borrowers, supplementing the efforts of the banks.

Retail Finance

NBFCs and HFCs have continued to scale up their portfolio focusing on housing finance, LAP, SME finance and consumer finance. Monoline NBFCs and MFIs focus exclusively on vehicle finance, gold loans, micro finance, etc. Within these sectors, housing finance market continues to grow significantly on the back of a young Indian demographie profile. Further, the SME segment continues to be under-banked and NBFCs are increasingly turning towards this sector. Thus, the potential for NBFCs and HFCs to scale up their business remains significant.

Capital Markets

FY16 was a roller coaster year for equity markets primarily due to significant global headwinds and poor earnings momentum. However, going ahead, sentiments should be better with graduai improvement in economy and corporate earnings. With greater interest in equities and other asset classes, the wealth management industry is also on the cusp of significant growth going forward.

After a stellar showing in FY15, debt capital markets faltered in FY16 due to global volatility and the US Fed rate hike. Though RBI resumed accommodative stance, the rate cuts failed to have the desired effect on bond market yields as transmission was poor. However, Union Budget and other policy actions by the Government and RBI are now paving way for efficient monetary transmission. Thus, we expect a much more vibrant FY17 for the debt markets.

Asset Management

The asset management industry in India consists of a vibrant and rapidly growing mutual funds sector, alternative investment funds (AlFs) and asset reconstruction. In recent times, MF & AIF sectors have seen a wide range of regulatory changes that have brought about increased competition and enhanced consumer protection.

Mutual Funds' average AuMs were R13.53 trillion during the fourth quarter of FY16, up 14% YoY, giving fresh impetus to the industry. Alternative assets funds in the structured credit and distressed assets space ended FY16 with AuMs of ~US$ 20 billion with inflows of ~US$ 4 billion during the year.

As the financial savings of Indian investors shift from hard assets (gold and real estate) to financial instruments, the asset management industry should expect exciting opportunities ahead.

Asset Reconstruction Industry continues to offer an alternative for the banks for speedier resolution of assets. ARCs grew their AuMs in FY16 despite facing funding/capital constraints. With the expected amendments to SARFEASI Act & other reforms, ARC industry will see significant prospects for growth.

Life Insurance

Life insurance sector in India suffers from low level of penetration at 3.3% of GDP and per capita insurance density of only Rs.3,498 while global insurance penetration stands at 6.2% with density of Rs.42,103 (source Swiss Re report). Given the young demographics in India, rising life expectancy and absence of state social security, insurance is expected to grow significantly offering exciting opportunities.  

EDELWEISS OVERVIEW

A FULLY DIVERSIFIED FINANCIAL SERVICES GROUP

Edelweiss was founded in November 1995 as a niche boutique investment banking firm and quickly focused on an aspiration to become India's first and largest diversified financial services groups. From taking a baby step into providing advisory and investment banking services, Edelweiss has grown by strategically focusing on synergistic diversification in adjacent spaces in businesses, client segments, asset classes and geographies. This strong focus has helped the group grow from being an advisory house into a Credit and Financial Services Institution.

EDELWEISS STRATEGY

Edelweiss has corne a long way since its inception and knowledge, research and innovation have been the key drivers for the company's growth. It is by conscious choice that the group constantly pursues innovation and also adjacent avenues and invests in new ideas and businesses. The core thought that underlines each business decision is to provide long-term value creation by building sustainable businesses while focusing on risk.

Over the years, Edelweiss has also demonstrated its ability to reinvent itself at the turn of each economic and business cycle. This element of adaptability and flexibility ensures that businesses spot opportunities, deal with dynamic economic situations and are ready to leverage knowledge, experience and professionalism in dealing with 'new new' prospects. With these business tenets, Edelweiss aspires to become a respected financial services firm with a portfolio of high quality growth businesses.

FINANCIAL PERFORMANCE HIGHLIGHTS

The year FY16 has been a rewarding year for Edelweiss as the strategy of diversification of businesses continued to build sustainability in our performance. We maintained the trend of our quarterly profits improving consistently since FY12 - 18 straight quarters of consistent growth coupled with efficiency and productivity improvement resulting in our net profit for FY16 recording a growth of 26% over FY15. One heartening feature of our profitability growth is that increasingly our profits are being contributed by a diverse set of businesses eliminating volatility in our performance.

Since inception in 1996, our total revenue has grown at a CAGR of 88% and net profit has increased at a CAGR of 81% up to FY16. In more recent times since the completion of our diversification phase in FY12, our total revenue and net profit both have grown at a four year CAGR of 34% up to FY16.

FINANCIAL HIGHLIGHTS

INCOME

Our Fund-based revenue brdominantly cornes from interest on loans which accounts for ~42% of total revenue for FY16, reflecting the scale up in credit book. Similarly, our Net Interest Income for FY16 was Rs.12,223 million (Rs.7,536 million for FY15), up 62%.

Agency fee & commission revenue was Rs.6,966 million for FY16 (Rs.5,727 million in FY15), up 22%.

After deducting the finance cost, Net Revenue for FY16 was Rs.26,956 million (R20,804 million in FY15), up 30%.

Life insurance business recorded a Gross brmium of the business was Rs.3,100 million in FY16 compared to Rs.l,930 million in the brvious year, a growth of 61%.

EFSL entity on a standalone basis earned a revenue of Rs.3,383 million in FY16 compared to Rs.2,482 million in FY15, up 36%, and its Profit after Tax was Rl,556 million in FY16 compared to Rs.l,115 million in FY15, up 40%.

Our diversified revenue streams ensure our constant growth across cycles despite volatile environment. EXPENSES

Total costs for FY16 wasR46,969 million (R33,839 million in FY15), up by 39%. Within our total costs, operating expenses grew by 34% in FY16 as we continued to invest in scaling up our younger retail businesses.

Employee expenses grew by 24% in FY16 as we continued hiring to be ready for future growth. As the size of our operations grew and as we became a Rs.320 billion asset company, it was also imperative to strengthen the organisation and we have added people at all levels, including over 80 senior professionals. We added about 670 employees during FY16 taking the total head count to 6,227 by the year end.

Interest expense grew by 43% in FY16 as our borrowings at the end of FY16 were higher at Rs.277.73 billion supporting the scale up in credit book.

PROFIT AFTER TAX

Our Profit after Tax and Minority for FY16 was R4,144 million compared to R3,287 million for FY15, a growth of 26%, which was mainly due to a 62% increase in Net Interest Income partly offset by a 34% growth in Non-interest Expenses.

We have demonstrated consistent QoQ growth in profitability since FY12 despite the macro environment being challenging in most parts of this period. This has been possible as a result of our long-term strategy of synergistic diversification across businesses, asset classes and client segments.

Profitability ex-insurance

Our life insurance business is relatively young and given the long gestation period of life insurance companies, it is still recording losses. Since our proportionate share of its losses passes through our Consolidated P&L, it tends to debrss our reported earnings. Excluding the impact of life insurance business, our net profit for FY16 would have been around Rs.5,188 million compared to Rs.3,813 million in FY15, a growth of 36%. With our tangible equity ex-insurance at Rs.28,644 million, the return on tangible equity ex-insurance cornes to around 18.6% for FY16 compared to 15.6% for FY15.

Balance Sheet

The effective Balance Sheet size at the end of FY16 was Rs.321.45 billion compared to Rs.270.72 billion at the end of FY15, a growth of 19%. The asset side of the balance sheet includes credit book assets Rs.200.14 billion besides liquid assets like FDs and cash balances Rs.31.16 billion and Government Bonds R48.66 billion.

On the liability side, our total net worth was R43.72 billion as on March 31, 2016 compared to Rs.35.31 billion as on March 31, 2015. Debt as on March 31, 2016 was Rs.277.73 billion (Rs.235.40 billion as on March 31, 2015). However, as a part of our liquidity management, we hold liquid assets as mentioned above and excluding such liquid assets, our Net Gearing Ratio stands at 4.95 times as on March 31, 2016. The Capital Adequacy Ratio on Consolidated basis stands at 18% at the end of FY16.

BUSINESS SEGMENT-WISE PERFORMANCE

Brief highlights of our business segment-wise performance in FY16 are as under:

CREDIT BUSINESS

Credit business of Edelweiss offers Structured Collateralized Credit to corporates where we provide customized solutions, Real Estate Finance and

Distressed Assets Credit under wholesale segment. The retail credit segment offers Mortgages including Home Finance and Loan against Property, SME and Agri Finance, Loan against Securities and Rural Finance.

Total credit book of the group stands at R200.14 billion at the end of this year compared to R150.36 billion at the end of the brvious year, a growth of 33%. The book has grown at a CAGR of 63% since FY09. Credit business improved its NIM in FY16 to 6.8% compared to 6.7% in FY15.

The asset quality of the overall credit book continued to remain under control with Gross NPLs at 1.40% and Net NPLs at 0.47%. The Provision Coverage Ratio (PCR) on NPLs was 67% at the end of FY16. Including the gênerai loan loss provision that we make on our standard assets, the PCR was 88%. We continue to focus on risk management and achieving growth in the book without diluting risk standards.

Retail Finance Business

As a part of our long-term strategy of synergistic diversification of asset classes and customer segments, Edelweiss has launched Housing Finance, Loans against Property (LAP) and Loans to Small and Medium Enterprises (SME) as a part of Retail Finance business during the past five years. We have also subsequently added Small Ticket Housing Loans and Rural Finance to our portfolio as a part of our conscious strategy to serve all sections of society.

This business operates in 45 cities and over 3,400 villages with a client base of 281,000 at the end of FY16 which is significantly higher compared to 41,000 at the end of FY15 as a resuit of determined push in Rural Finance.

The Retail Finance business had built a book of R42.74 billion at the end of FY16 compared to R29.00 billion at the end of FY15, up 47%. The book included Housing Loans and LAP of R26.41 billion and SME loans R11.18 billion at the end of FY16. The loan to value ratio in its home loans and LAP portfolio remained at a comfortable level of~50% with an average tenor of ~15 years.

Including Agri finance and loans against securities to retail clients, our total retail credit portfolio stands at R57.35 billion at the end of FY16, up 41% over FY15. It now accounts for 29% of the total credit book catering to 304,800 clients.

NON-CREDIT BUSINESSES

Our Non-Credit businesses include Capital Markets, Wealth Management, Asset Management, Balance Sheet Management Unit and others.

CAPITAL MARKETS

Edelweiss began its journey in 1996 with focus on Investment Banking and later diversified into Institutional Equities, Retail Broking and Fixed Income advisory.

Edelweiss continues to be a leader in Investment Banking and Fixed Income Advisory and executed 100 transactions in FY16 including 14 transactions under Investment Banking. Our Equity Capital Markets business was among the top five arrangers for IPOs in FY16 with a market share of over 30% of the issue amount (Source: Prime Database).

We maintained our leadership in Tax-free bonds issuances as we were the only player to be mandated as lead arranger to all public tax-free bond issuances in FY16 raisingR311 billion across 8 issues. We maintained top ranking in the overall public issuance with a market share of nearly 95% in FY16, as arranger. In the short-term commercial paper segment too, we retained the number one position with a market share of over 15%. (Source: Prime Database).

Institutional Equities business provides equity and equity-derivatives sales and trading services to a large base of Fils and Dlls. We continued to be among the largest Indian domestic Institutional Broking Houses with a market share of 4 to 4.5% by revenue.

Retail Broking business includes the organically built online broking format through our Internet portai www.edelweiss.in and offline broking format through acquisition ofAnagram in FY11.

WEALTH MANAGEMENT

The Wealth Management business offers Wealth Management advisory and investment services to HNI clients with an emphasis on research and analytics. This business ended the year FY16 with AuAs of over R295 billion compared to R176 billion at the end of the brvious year demonstrating the significant scale up achieved in this business.

Retail Capital Markets and Wealth Management businesses together had over 494,000 clients at the end of FY16 compared to around 455,000 clients at the end of FY15.

ASSET MANAGEMENT

Asset Management business comprises of four businesses - Alternative Asset Management, Alternatives - Liquids, Liquid - Traditional (Retail Asset Management) and Asset Reconstruction.

Alternative Asset Management

The Alternative Asset Management business focuses on mobilising subscriptions from offshore and domestic institutions and HNIs through funds structures to invest in alternative asset classes. Our objective is to offer innovative and differentiated products to clients which we achieve by combining Edelweiss platform with investment capabilities to create a superior investment performance. This business had AuMs of ~Rs.22 billion equivalent sbrad over four funds at the end of FY16.

Alternatives - Liquids

Our Multi Strategy funds under the AIF platform offer Liquid Alternative strategies to HNI clients. This offering has further strengthened and diversified our brsence in the asset management business. This business had AuMs of around R11.6 billion by the end of FY16 compared to R5 billion at the end of FY15, a growth of 128%.

Liquid - Traditional (Retail Asset Management)

Edelweiss Mutual Fund managed 12 funds across Equity, Debt and Liquid schemes with an average AuM of around R16.6 billion during the fourth quarter of FY16. Around 96% of its AuMs was in equity schemes making it a unique business proposition. It had an active base of over 28,900 investors (18,300 at the end of FY15) and a distributor base of over 3,750 at the end of FY16. Focus of this business continues to be on building investment capabilities and creating a track record while offering differentiated solutions.

During the year, Edelweiss has signed an agreement to acquire schemes of JP Morgan's Mutual Fund business in India subject to regulatory approvals. This acquisition aligns with our continuous efforts to actively seek synergistic opportunities that add value to our clients and provide impetus to our growth aspirations.

Asset Reconstruction Business

Edelweiss Asset Reconstruction Company (EARC) continued to scale up its business with assets of R271 billion at the end of FY16 compared to R203 billion at the end of FY15, a growth of 33%. EARC is now the leading ARC in the country. It has already created a track record of resolution of assets of ~R120 billion by the end of FY16 through multiple resolution strategies with revival and business turnaround being the foremost business strategy. It targets investment into potentially viable companies and has assisted companies to completely turnaround operations achieving superior returns.

ARCs brsent a viable alternative for the banks for asset resolution as they allow them to direct resources for more productive purposes. At the same time, ARCs aim to plough back productive assets into the country's economy.

WAREHOUSING SERVICES

As a part of our strategy of diversifying asset classes, Edelweiss aims to offer end-to-end services to meet a new emerging need by bridging the physical with the financial needs of the agri commodities market. We are working towards creating a combrhensive setup that offers services ranging from procurement of commodities, warehousing, quality assaying and certification, collateral management, credit, distribution to other allied activities.

As a part of our endeavour, at the end of FY16 we had around 265 leased warehouses under our management with a storage capacity of around 11 lakh MT.

LIFE INSURES

Edelweiss expanded its addressable retail markets by launching Edelweiss Tokio Life Insurance Company (ETLI) in 2011 in partnership with Tokio Marine of Japan. Edelweiss Tokio Life was launched with a capital of Rs.5.5 billion - among the highest start-up capital for any Indian life insurer. The commitment of the JV partners to the business was further demonstrated in FY16 when Tokio Marine infused fresh capital of Rs.5.3 billion taking it's share to 49% in the company. Currently, Edelweiss holds 51% equity in this JV with Tokio Marine holding the rest. Its net worth at the end of FY16 wasR9.39 billion.

Edelweiss Tokio Life is one of the fastest growing life insurance companies in India in the last three years. Winner of Rising Star Insurer Award in 2013, it continues to scale up its business with a focus on enhancingquality of business with a focus on the customer. Gross brmium of the business wasR3,100 million in FY16 compared to Rl,930 million in the brvious year, a growth of 61%. First year Premium (including Single Premium) grew by 50% to Rs.l,836 million (Rs.l,224 million for FY15)

Edelweiss Tokio Life continues to expand its distribution footprint across agency, partnership and direct channels. It has a network of 71 branches across 61 major cities in India. The agency channel force has also scaled up with the total number of Personal Financial Advisors crossing 15,400 by the end of this financial year compared to around 10,000 a year ago.

Edelweiss Tokio Life's distribution strategy is based on "Need Based Sales" philosophy and the key message in its communication, "Insurance se badhkar hai aapki zaroorat", continues to emphasise the core value of customer centricity.

Edelweiss Tokio Life offers 26 individual products with 8 rider options, designed to meet various needs of customers. It also offers 4 group products.

Edelweiss Tokio Life's Ulip funds have been rated top performers by Morningstar as on March 31, 2016 with 4 of the 6 funds rated as 5-star.

"YamrajRoad Safety Campaign", Edelweiss Tokio Life's safety awareness campaign won Gold at the Asia Pacific Customer Engagement Forum Awards 2015 under the category 'BTL-Successful use of CSR activity'.

BALANCE SHEET MANAGEMENT UNIT (BMU)

Balance Sheet Management

The BMU manages our group's liquidity in a way similar to that of the Treasury of a commercial bank. As a part of this process, we have developed a set of Balance Sheet Management Rules to measure, monitor and change key metrics and positions to ensure a healthy Balance Sheet and these are benchmarked to best international practices.

Asset Liability Management Committee (ALCO)

Edelweiss ALCO primarily manages allocation of capital among businesses along with Asset Liability Management. It also oversees implementation of an effective process for managing the group's interest rate & liquidity risks among a host of other crucial functions.

Overnight Liquidity Cushion

BMU ensures that an adequate liquidity cushion is maintained to take care of immediate requirements while continuing to honour our commitments as a going concern. During the year FY16, we enhanced our overnight liquidity cushion to R29 billion.

Changing Liabilities Profile in Sync with Lengthening Asset Profile

Edelweiss has not only continued to maintain a liquid balance sheet, but over the last five years has embarked on a strategy of reducing dependence on market borrowings and increasing liabilities in the six months to five years bucket thereby bringing down dependence on short-term borrowings. During FY16, we contracted over R27 billion of medium to long-term NCDs. We also tapped long-term bank facilities and our total sanctioned bank lines of credit at the end of FY16 were R105 billion compared to R73 billion a year ago.

Diversification of Sources of Funding

We have also diversified sources of borrowings by tapping newer sources like life and gênerai insurance companies, Pension and Provident Funds during FY16.

EDELWEISS TO BE PRINCIPAL SPONSOR FOR INDIAN OLYMPICTEAM

We are happy to share that Edelweiss will be a Principal Sponsor of the Indian Olympic team for the Rio Olympics, 2016. As a part of this association, Edelweiss Tokio Life will also provide life insurance cover of RIO million to each of the athletes of the Indian Olympic team. We have always been keen to promote sports in India and have supported some of India's best known sports persons like PV Sindhu, Ayonika Paul and MC Mary Kom in the past.

The Olympic Games are a true meritocracy and are about excellence, about achievement, about hard work. These are the values we cherish at Edelweiss and we constantly work towards imbibing these in our daily lives.

EDELWEISS BRAND

During the year, we appointed Saina Nehwal, the ace badminton player, as our brand ambassador to support outstanding sports persons and enhance our brand image. Saina is known for her commitment to the game - the unwavering focus, sheer hard work and mental discipline, qualifies that we as an organisation strongly identify with when we speak of adding and delivering value to all our customers' needs. Like her, we need to continually remain energised, disciplined, tenacious and committed to our game.

Our efforts towards enhancing the Edelweiss Brand Equity have also borne fruit with Edelweiss Financial Services having been identified amongst the '100 Most Valuable Brands of India' in 2015 through a research study carried out by World Consulting & Research Corporation (WCRC). Edelweiss was also recently chosen as one of The Economic Times' "Most Promising Brands of India in 2015".

OPPORTUNITIES

We believe that despite the current headwinds, the long-term India growth story is intact and the recent improvement in the macro-economic indicators bodes well for a diversified financial services firm like Edelweiss. We see immense opportunities coming our way in FY17 and beyond as under:

India is already recording the fastest rate of growth within the large economies in the world and various projections for FY17 by the World Bank or IMF etc., indicate that India will continue to occupy the top position. With this, we see large opportunities for us to grow our various diversified businesses.

Indian savers have been brdominantly opting for hard assets or bank deposits among investments. Going forward, we see a greater diversification of asset classes among them which will throw up newer opportunities.

Social, Mobility, Analytics and Cloud Computing (SMAC) is the emerging trends in technology. The recent Government initiatives in respect of Digital India will also open up access to a whole set of new clients and this will surely lead to a change in the manner financial services are delivered or consumed.

—O We believe the policy liberalisation and forward-looking regulatory changes will help markets grow in size, thus making available wider opportunities for providers of financial services.

THREATS

At the same time, we perceive following threats for growth of financial services sector in India:

• Slower than expected recovery of macro-economy, domestically as well as globally, or inability of Government to push through major economie reforms can delay the return of growth.

• While the monsoon is brdicted to be normal this year, any unforeseen failure of the monsoon for the third year in a row will accentuate the already brcarious situation of drought across the country impacting the rural purchasing power significantly.

OUTLOOK & STRATEGY

Despite the sluggish GDP growth rate, which is still higher than that of most large economies in the world, the long-term outlook on India remains upbeat. With a stable government, which is committed to policy reforms, ease of doing business and encouraging foreign investments, in place, India is expected to resume its journey to higher growth sooner than later.

The financial services sector is expected to grow once the conditions start improving, early signs of which are already visible. Meanwhile, the debt markets hold exciting opportunities as they will become the more dominant source of capital for corporates in future. While the commercial banks are grappling with asset quality issues, the NBFCs are expected to continue to be an effective channel for credit dispensation.

In this backdrop, we believe our strategie approach whose cornerstones are profitability, scalability, constant focus on risk and growth in adjacent markets, building leadership and maintaining culture, will continue to manifest in constant growth for us.

RISK MANAGEMENT

Edelweiss' business activities in multiple geographies and products make it susceptible to various kinds of risks. Certain risks are inherent to the products or services that are offered by Edelweiss and other risks arise due to the external environment. Risk is the cornerstone of our business philosophy and it is one of our Guiding Principles, "We will respect risk". Edelweiss has adopted best in class risk monitoring tools to monitor risks in various products or services.

Edelweiss has an in-house eight risk framework coupled with a four tiered risk governance structure which protects Edelweiss and ensures that risk is contained. The business risk team is responsible for implementation of risk measures at the business level. The enterprise unit, Global Risk Group, is responsible for policy formulation and consolidation of risks at an aggregate level. The Board of Directors oversees the risk management process at Edelweiss by way of the Risk Management Committee.

We continue to focus on pro-active and dynamic management of our risks such as Credit Risk, Market Risk, Operational Risk or Technology Risk, etc., through elaborate risk assessment framework. Our paranoia about risk management helps us to steer through environmental stress without a major impact.

Additionally, the asset liability mismatch is regularly assessed and necessary care is taken to maintain an adequate liquidity cushion for maturing liabilities and unforeseen requirements.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Internal Financial Controls

As per the Companies Act, 2013, the companies need to ensure that they have laid down internal financial controls and that such controls are adequate and were operating effectively. Towards this end, we at Edelweiss have always adopted a risk balancing approach. We have accordingly followed the Risk and Control Self Assessment (RCSA) approach and have put in place Systems and procedures for the purpose together with an independent review by an external agency.

Internal Control Procedures

The Internal Control Procedures of Edelweiss include monitoring compliance with relevant matters covered under the Companies Act 2013, delegation of powers, segregation of duties, third party confirmations, periodic reconciliations, RCSA, physical verification and checks on accuracy and all related matters.

Internal Control Policies

Edelweiss has institutionalized a strong compliance culture across the group recognising that transparency and trust amongst all its stakeholders can be achieved only through this. We have a Global Compliance Group and Business Compliance Group that ensure compliance with all the applicable laws.

We have in place a set of various crucial policies such as the Prevention of Insider Trading, Conflicts of Interest Policy and a strong Whistleblower Policy.

TECHNOLOGY

Technology is disrupting the status quo of almost all industries and at the same time throwing open unbrcedented opportunities and threats.

Edelweiss's long-term commitment to technology continues to enable it to grow and unlock competitive advantage for our diversified businesses. Our robust and advanced technology back-end and infrastructure is a key differentiator for us and runs on a multi award winning private cloud.

During the year we embarked on several path-breaking and strategies initiatives as under:

HUMAN RESOURCES

The Edelweiss philosophy on people is deep rooted in building and nurturing talent and leadership within the organization. We believe that our people have always been the drivers of innovation, efficiency and productivity leading to our consistent track record of growth. Throughout FY16, we have continued to deepen our philosophy through a series of well designed measures, some of which are summarised below:

• At Edelweiss, we have always valued our gender mix and are happy that 19% of our employees are women. In addition, mentoring for women employees is a formai programme under aegis of Women Empowered platform.

• As a part of Edelweiss' ongoing efforts to strengthen the compliance culture, Achieving Compliance Excellence (ACE), a Compliance Learning Programme with 28 e-modules covering approximately 25 hours of e-learning was launched.

• Edelweiss has been sbrading its campus footprint wider than ever with over 150 hires from across brmier campuses like the top ranked IIMs, IITs and law colleges.

Building Leadership for Future

The Edelweiss Leadership Programme has been created in the backdrop of Edelweiss' rapid expansion and diversification of businesses coupled with the aspiration to grow further. This programme nurtures and develops potential leaders to seamlessly execute the organizations growth target over the next eight to ten years with the help of the three - tiered Edelweiss Leadership Structure comprising of Senior Leaders (SL), Advancing Leaders (AL) and Emerging Leaders (EL). We are committed to providing an opportunity to all who can contribute at a leadership level.

We ended FY16 with a total headcount of 6,227 (5,555 as at the end of the brvious year) sbrad across 237 offices in 122 cities Worldwide. EFSL entity on a standalone basis had 110 employees at the end of FY16.

CUSTOMER CENTRICITY

The diversification strategy followed by Edelweiss in the past few years has seen addition of a large number of retail clients with the result that by now we service over 887,000 clients across Institutional, HNI and Retail client segments. Whether wholesale or retail businesses, we believe that customer centricity will be the key differentiator. Customer centricity goes to the heart of how we think and manage our businesses and our relationships with the clients. It is about how we design our products, how we sell and finally how we service our customers. Customer Centricity at Edelweiss imbibes all these essential tenets to build long-term relationship with clients based on trust and fair play

Cautionary Statement

Statements made in this Annual Report may contain certain forward looking statements, which are tentative, based on various assumptions on the Edelweiss Group's brsent and future business strategies and the environment in which we operate. Actual results may differ substantially or materially from those exbrssed or implied due to risk and uncertainties. These risks and uncertainties include the effect of economies and political conditions in India and internationally, volatility in interest rates and in the securities market, new regulations and Government policies that may impact the Company's businesses as well as the ability to implement its strategies. The information contained herein is as of the date referenced and Edelweiss does not undertake any obligation to update these statements. Edelweiss has obtained all market data and other information from sources believed to be reliable or its internal estimates, although its accuracy or completeness cannot be guaranteed. The discussion relating to business wise financial performance, financial statement, asset books of Edelweiss and industry data herein is reclassified/ regrouped based on Management estimates and may not directly correspond to published data. The numbers have also been rounded off in the interest of easier understanding.

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