Committee

INTRODUCTION

Non-Banking Financial Companies (NBFCs) form an integral part of the Indian financial system. NBFCs are required to ensure that a proper policy framework on Risk Management Systems with the approval of the Board is formulated and put in place. This policy document has prepared in line with the RBI guidelines, as the SGS Fintech Private Limited (hereinafter referred to as “SGS”) needs to comply with process requirement set out by Reserve Bank of India (RBI).

KEY DEFINITIONS

‘Risk’ can be literally be defined as the uncertainty and undesirable outcomes. Risk is measured in terms of consequences and likelihood. Risks can be internal and external and are predominant in all the business activities. Every member of any organisation continuously manages various types of risks. Formal and systematic approaches to managing risks have evolved and they are now regarded as good management practice also called as Risk Management.

‘Risk Management’ is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of uncertain events or to maximize the realisation of opportunities. Risk management also provides a system for the setting of priorities when there are competing demands on limited resources and the systematic way of protecting business resources and income against losses so that the objectives of the Company can be achieved without unnecessary interruption.

Risk Management Process: The systematic application of management policies, procedures and practices to the tasks of establishing the context, identifying, analyzing, evaluating, treating, monitoring and communicating risk.

Risk Assessment: Risk assessment is a systematic process used to identify, evaluate, and prioritize potential risks that could negatively impact an organization’s objectives or operations. It involves identifying hazards, assessing the associated risks, and implementing control measures to mitigate those risks. Risk Assessment consists of a detailed study of threats and vulnerability and resultant exposure to various risks.

Risk Mitigation: Risk mitigation involves taking action to reduce company’s exposure to potential risks and reduce the likelihood that those risks will happen again.

GENERAL PROVISIONS

This policy represents the basic standard of Risk Assessment to be followed by the company.

All relevant employees must be thoroughly familiar or made familiar with it and make use of the material contained in this policy.

The provisions of Section 134(3)(n) of the Companies Act, 2013 necessitate that the Board’s Report should contain a statement indicating development and implementation of a risk management policy for the Company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the Company. Further, the provisions of Section 177(4)(vii) of the Companies Act, 2013 require that every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall inter alia include evaluation of risk management systems. Master Direction – Reserve Bank of India (Non-Banking Financial Company –Scale Based Regulation) Directions, 2023 also emphasize of the formulation of risk Management Committee by the NBFC Companies to ensure that the loans given are them are duly recovered within framed timelines and are not shown as Non Performing Assets (NPAs) in the books of Company.

1.   OBJECTIVES AND SCOPE OF THE POLICY

The main objective of this policy is to ensure sustainable business growth with stability and to promote a pro-active approach in reporting, evaluating and resolving risks associated with the business. The Risk Management Policy provides for the enhancement and protection of business value from uncertainties and consequent losses.

The specific objectives of this Policy are:

  • To ensure that all the current and future material risk exposures of the Company are identified, assessed, quantified, appropriately mitigated, minimized and managed i.e., to ensure adequate systems for risk management;
  • To enable compliance with appropriate regulations, wherever applicable, through the adoption of best practice;
  • To ensure that lenders are protected against fraud and their loans are adequately recovered within framed timeline and with decided interest rate.

2.   RISK MANAGEMENT

Risk Management is a business facilitator by making more informed decision with balanced risk-reward paradigm. The company shall follow a disciplined risk management process and has been taken business decisions, ensuring growth and balancing approach on risk-reward matrix.

There are mainly three types of risk associated with our business which are detailed as under:

2.1  CREDIT RISK:

A risk of loss due to failure of a borrower to meet the contractual obligation of repaying his debt as per the agreed terms is commonly known as risk of default.

RISK MITIGATION:

  • Credit risk shall be managed using a set of credit norms and policies. The Company shall have proper loan agreements setting out all the terms and conditions of loans for lenders and borrowers. All credit exposure limits shall be approved by authorized persons.
    • There shall be a structured and standardized credit approval process to ascertain the credit worthiness of the borrower.
    • The Company shall follow a process of time to time revisiting the credit policy and KYC norms, on the basis of experience and feedback.
    • Provisions for bad and doubtful debts are appropriately made in books of accounts.
    • Appropriate recovery management and follow-up.

3.2  MARKET RISK:

This is majorly external market dynamics, which give rise to risks like Liquidity risk, Interest Rate risk and Funding risk. Liquidity risk is the inability to meet financial obligations in a timely manner and without stress. The Company shall resort to proper ways to manage such risk. Since the Company deals in the business of investment activity as well there is always market risk associated with such investment concerning diminution in the value of investment.

1.RISK MITIGATION:

As a contingency plan, the Company shall maintain sufficient approved but undrawn credit lines on a continuous basis as buffer to manage eventuality of liquidity constraints. Company will also maintain adequate ratio of risky and non risky investment in line with the senior executive’s advice.

In addition to the above Company has formed a Risk Management Committee and composition of the same is as follows:

  • Mr. Mahesh Kumar (Director)
    • Mr. Pankaj Kumar Srivastav (Director)
    • Mr. Sanchit Gupta (Director)

Following are main objectives of the said committee:

  • The Committee is constituted to assist the Board in the discharge of its duties and responsibilities in this regard.
  • The duties and responsibilities of the members of the Committee are in addition to those as a member of the Board of Directors.

Other major responsibilities of the committee are covered under terms of reference of the committee.

The Company shall be compliant in terms of regulatory norms and therefore shall effectively manage regulatory risks. Effective customer redressal mechanism and fair practices shall keep legal risk under control.

The Company shall have processes in place, to manage the risks of fraud and the suspected frauds are reported, wherever necessary.

2. RISK ASSESSMENT OF BORROWERS

It is generally recognized that certain borrowers may be of a higher or lower risk category depending on the customer’s background, borrower’s net worth and the ability to refund and pay interest etc. As such, the concerned person shall apply to each of the customers due diligence measures on a risk sensitive basis. Initially, all the new clients are to be marked as high – risk category, however they may be subsequently re categorised depending on their performance based on our own experiences. In line with risk based approach, the type and amount of information and documents should be collected from the client for the purpose of verification and proper KYC norms would be in place to assess credit worthiness of Customer.

  • RESPONSIBILITY FOR RISK MANAGEMENT

Management is responsible for the development of risk mitigation plans and the implementation of risk reduction strategies. Risk management processes should be integrated with other planning processes and management activities.

4. COMPLIANCE AND CONTROL

All the Senior Executives under the guidance of the Chairman and Board of Directors has the responsibility for over viewing management’s processes and results in identifying, assessing and monitoring risk associated with Organization’s business and the implementation and maintenance of policies and control procedures to give adequate protection against key risk.

5. AMENDMENTS

This policy may be amended subject to the approval of Board of Directors, from time to time in line with the business requirement of the company or any statutory enactment or amendment thereto and shall be reviewed at least every year to ensure it meets the requirements of legislation and the needs of organization.

6. CONTENT ON THE WEBSITE

  • Appropriate disclosure regarding this Policy shall be made on www.sgsfintech.com.