RISK MANAGEMENT POLICY

 

1. INTRODUCTION

Risk  Management  is a key  aspect  of the  “Corporate  Governance  Principles  and Code  of Conduct” which aims to improvise the governance practices across the activities of Nidhi Mercantiles Ltd. (the  Company).  Risk  management  policy  and  processes  will enable  the Company  to proactively  manage  uncertainty  and  changes  in the  internal  and external environment to limit negative impacts and capitalize on opportunities.

 

2. OBJECTIVE OF POLICY

The Company is prone to inherent business risks. 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.  In order to achieve the key objective, the policy establishes a structured and disciplined approach to Risk Management, in order to guide decisions on risk related issues.

This document is intended to formalize a risk management policy, the objective of which shall be identification, evaluation, monitoring and minimization of identifiable risks.

This policy is in line with Clause 49 (VI) of the Listing Agreement entered into with the Stock Exchanges, which requires the Company to lay down procedures for risk assessment and risk minimization.

 

3. DEFINITIONS

“Audit Committee” means Committee of Board of Directors of the Company constituted under  provisions   of  Listing  Agreement  entered  into  with  the  Stock  Exchange  and Companies Act, 2013.

“Board” means Board of Directors of the Company.

“Company” means Nidhi Mercantiles Ltd.

“Risk” is defined as the chance of a future event or situation happening that will have an impact upon Company’s objective favorably or unfavorably.  It is measured in terms of consequence and likelihood.

“Risk Management” encompasses risk assessment plus the evaluation of risks against established tolerances, their treatment and monitoring.

 

4. RISK APPETITE

A  critical  element  of  the  Company’s  Risk  Management  Framework  is  the  risk  appetite, which  is  defined  as  the  extent  of  willingness  to  take  risks  in  pursuit  of  the  business objectives.

The key determinants of risk appetite are as follows:

1. shareholder and investor preferences and expectations;
2. expected business performance (return on capital);
3. the capital needed to support risk taking;
4. the culture of the organization;
5. management experience along with risk and control management skills; (vi) longer term strategic priorities.
   Risk appetite is communicated through the Company’s strategic plans. The Board and management monitor the risk appetite  of the Company  relative  to the Company’s  actual results to ensure an appropriate level of risk tolerance throughout the Company.

 

5. RISK  MANAGEMENT FRAMEWORK

The Company believes that risk should be managed and monitored on a continuous basis. As a result, the Company has designed a dynamic risk management framework to allow to manage risks effectively and efficiently, enabling both short term and long term strategic and business objectives to be met.

The Company’s approach to risk management is summarised as below:

1.   Identification of risks

To ensure key risks are identified, The Company:

• defines the risks in context of the Company’s strategy;
• documents risk profiles, including a description of the material risks; and
• regularly reviews and updates the risk profiles. The Company’s Risk Profile is summarised below.

 

2.   Assesment of risks

The Risk assessment methodology shall include:

• collection of information;
• identification of major risks;
• rating of each risk on the basis of; Consequence
• Exposure
• Probability
• prioritisation of risks;
• function-wise exercise on risk identification, risk rating, control;
• function-wise setting the level of responsibility and accountability.

 

3.   Measurement and control

Identified  risks  are  then  analyzed  and  the  manner  in  which  the  risks  are  to  be managed  and controlled  are then  determined  and agreed.  The generally accepted options are;

• accepting the risk (where it is assessed the risk is acceptable and where avoiding the risk presents a greater risk through lost opportunity);
• managing the risk (through controls and procedures);
• avoiding the risk (through stopping the activity);
• transferring the risk (through outsourcing arrangements);
• financing the risk (through insurance arrangements).

 

4.  Continuous assessment

The Company’s Risk Management Framework requires continuing cycle of implementing, monitoring, reviewing and managing the risk management processes.

 

6. RISK   PROFILE

The identification and effective management of risks is critical in achieving strategic and business objectives of the Company. The Company’s activities give rise to a broad range of risks which are considered under the following key categories of risk:

 

6.1 Strategic Risks

• Lack of responsiveness   to the  changing  economic  or  market  conditions, including commodity prices and exchange rates, that impact the Company’s operations;
• Ineffective or poor strategy developed;
• Ineffective execution of strategy.

 

6.2 Financial Risks

• Financial performance does not meet expectations;
• Capital is not effectively utilised or managed;
• Cash flow is inadequate to meet financial obligations;
• Financial results are incorrectly accounted for or disclosed; and
• Credit, market and/or tax risk is not understood or managed effectively.
• Forex exposure not adequately covered.

 

6.3 Operational Risks

• Difficulties in commissioning and operating a particular business;
• Unexpected increase in the costs of the components / raw materials required to run a business;
• Adverse market conditions;
• Failure to meet the expenditure commitments on prospecting/marketing a particular business;
• Inadequate or failed internal processes, people and systems for running a particular business.

 

6.4 Investment Risks

• Failure to provide expected returns for defined objectives and risk such as underperforming to the stated objectives and/or benchmarks.

6.5 People’s Risk

• Inability to attract and retain quality people;
• Inadequate succession planning;
• Inappropriate work culture & ethics;
• Inefficient whistle blower mechanism and;
• Inappropriate policy for woman safety at work place.

 

6.6 Legal and Regulatory Risks

• Legal / Commercial rights and obligations are not clearly defined or misunderstood; and
• Commercial interests not adequately protected by legal agreements.

 

6.7 Information Systems

• Temporary failure of Hardware / software and / or Power.

6.8 Compliance Risks

• Nonconformance with or inability to comply with rules, regulations, prescribed practices, internal policies and procedures or ethical standards.

 

7. GOVERNANCE STRUCTURE

The Company’s Risk Management Framework is supported by the Board of Directors, Management and the Audit Committee.

 

7.1 Board of Directors

The Board will undertake the following actions to ensure risk is managed appropriately:

• The Board shall be responsible for framing, implementing and monitoring the risk management plan for the company;

• Ensure that the appropriate systems for risk management are in place;
• Participate in major decisions affecting the organization’s risk profile;
• Have an awareness of and continually monitor the management of strategic risks, financial risks, operational  risks, investment  risks, people’s risk, legal and regulatory risks & compliance risks;
• Be  satisfied  that  processes  and  controls  are  in  place  for  managing  less significant risks;
• Be satisfied that an appropriate accountability framework is working whereby any delegation of risk is documented and performance can be monitored accordingly;
• Ensure risk management is integrated into board reporting and annual reporting mechanisms.

 

7.2 Management

• Management is responsible for monitoring and whether appropriate processes and controls are in place to effectively and efficiently manage risk, so that the strategic and business objectives of the Company can be met;.
• To assist the Board in discharging   its responsibility   in relation to risk management;
  
  When considering  the  Audit  Committee’s  review  of financial  reports,  the Board  receives  a written  statement,  signed  by the Managing  Director  and Chief Financial Officer (or equivalents), that the Company’s financial reports give a true and fair view, in all material respects, of the Company’s financial position   and  comply   in  all  material   respects   with  relevant   accounting standards. This statement also confirms that the Company’s financial reports are founded on a sound system of risk management and internal control and that the system is operating effectively in relation to financial reporting risks;
• Reporting to the Board of Directors consolidated risks and mitigation strategies on a half yearly basis.

 

7.3 Audit Committee

• The Committee is delegated with responsibilities in relation to risk management and the financial reporting process of the Company;
• The Committee is also responsible for monitoring overall compliance with laws and regulations.

 

8. REVIEW OF THE POLICY

The Board will review this Policy from time to time to ensure it remains consistent with the Board’s objectives and responsibilities.

 

9. PUBLICATION OF POLICY

This Policy will be available on the Company’s website and the key features will be published in the annual report.